Well-known chairs like Lucy Turnbull can help biotech companies such as Prima Biomed better explain their product offerings. Turnbull is pictured with Prima Biomed chief executive Matt Lehman.
Photo: Michele Mossop
A well-known identity stepping in as chairman can be a godsend for Australian biotechnology companies, many of which are developing technologies with high potential but struggling to convince investors of their value.
The high-risk sector includes dozens of start-ups that are languishing on the Australian Stock Exchange, many of which possess technologies that are notoriously difficult to explain. But sector experts say they are undervalued, and with big-name international shoppers on the hunt, the reward for risk is the highest it has been for a decade. A well-known business identity from outside can play a huge role in helping a company explain its value.
One hopeful is Prima Biomed (ASX: PRR), which gained Lucy Turnbull as its chair after she invested $200,000 in the business in 2008. The company wants to commercialise an immunotherapeutic vaccine that destroys cancer cells, and is hoping to raise $15 million from existing shareholders to fund ongoing clinical trials. Turnbull is optimistic.
“This has the potential to be a platform technology for other cancer types, that’s the promise,” she tells The Australian Financial Review. “You have to aim high, but the quality of the people and the institutions we are working with is very high and I’m very optimistic.”
The company’s share price has fallen steadily since joining the Nasdaq just over a year ago, but this is a common story among biotechs. Julie Phillips is a biotechnology veteran and chief executive of ASX-listed BioDiem (ASX: BDM). She points to the example of Pharmaxis, which has a share price of just over 15¢ and a market cap of $47.82 million. It has developed an inhaler product for the treatment of lung diseases like cystic fibrosis.
“I have always really liked that company,” Phillips says. “They have done what they said they would do, have products on the market and have a pipeline. I don’t think their share price reflects their value at all. Given we are in a global industry, the potential for a company like that is just enormous.”
BioDiem, which develops and commercialises vaccines, is itself a $4.69 million market tiddler. But its profile has been raised by Australian businessmen Hugh Morgan, who became its chairman in 2005 and participated in a $2.5 million rights issue last year.
“Having a strong chairman is a joy for a CEO,” Phillips says. “Having the high-profile person is good because one of the problems with biotech is the value is locked up in the jargon. People don’t understand things I get super excited about. I think a lot of people are happy to follow someone whose business sense they trust.”
She says you have to be slightly “manic” to be in the sector, but the risk is worth it for the massive payouts that are possible. The sector is global and there have been some big buyouts in the United States in recent years. Notable wins include Nasdaq-listed BioGen Idec’s purchase of Stromedix in a $US563 million deal early last year, and Shire’s buy of Ferrokin BioSciences a month later for $US325 million.
“If you are looking at the more speculative end it’s a good time to come into the biotech sector,” Phillips says. “In the micro-cap sector the share prices are really low.”
Once in a decade opportunity
Global financial services firm PhillipCapital in January released a report saying Australian biotechnology companies had the best reward for risk in 10 years, citing a range of emerging companies that would likely deliver profits over the next three years.
A number of small Australian biotechnology companies are beginning to turn a profit. Shares in Australian company Cogstate (ASX: CGS) have hovered under 40¢ for the past six months despite the company’s revenue rising 48 per cent to $12 million in 2012 and a net profit after tax of $2.5 million. It is conducting its first public trials in Canada, where Canadian GPs can refer their patients to get a test it claims can detect cognitive decline years before clinical signs emerge of conditions like Alzheimer’s disease.
Universal Biosensors (ASX: UBI) doubled its revenue to $29.6 million for full-year 2012. It has developed a disposable, multi-layer diagnostic test strip to quickly measure biomarkers in the blood such as blood levels of glucose for diabetics.
Another, Nanosonics (ASX: NAN), had $3.34 million revenue for the fourth quarter of 2012 with its chemical-free way to disinfect equipment.