AusBiotech CEO, Dr Anna Lavelle, yesterday presented to the Australian Shareholder Association’s 2016 Grow Your Portfolio Conference, to raise the profile of biotech investing with retail investors.
In her presentation to the conference, Dr Lavelle explained the unique long-term nature of biotech and the characteristics and different phases that biotech and medtech companies go through to increase shareholder value.
The sector is a legitimate addition to a diversified portfolio. Last year the Australian biotechnology industry attracted record deal flows in excess of $2 billion and capital raising at $1.1 billion, while the listed sector performed well. Biotech Daily’s ‘Top 40’ biotech index outperformed itself versus the previous year, with its Index (ex majors Cochlear, CSL and ResMed) up 22 per cent and the index also outperformed the benchmark S&P/ ASX 200, which was down 2.7 per cent for the year. The majors were up 16.9 per cent.
Dr Lavelle explained that Australia is a world-leading location for biotechnology, ranked fourth in the world, and boasts the largest listed biotechnology sector as a proportion of GDP in the world. It has one of the largest and fastest-growing public markets for biotechnology and yields some of the greatest public revenues. And being home to one of the largest groups of global graduate students, Australia’s strength in biotechnology promises to grow.
Innovative, technology-focussed companies in the life science industry have a different business model to other companies, such as unique regulatory and clinical trial requirements, a long development cycle, during which a company may operate in loss, and the technology is intangible IP and often difficult to explain.
Most investors in life science companies tolerate higher levels of risk, which is commensurate with that of investors in the mining industry, where risk is higher but when successful, returns too are higher than average.
The motivations of investors in the life sciences include those seeking explosive capital growth, or returns greater than stock markets’ index averages; Seeking to invest where there will also be a community benefit from the product/s in development (such as medicines or medical technologies); appeal to investors looking to diversify or balance a portfolio; or equities in this area are less impacted by broader economic conditions (uncorrelated) and therefore perform better in volatile markets.
The industry highlights in the past year included Hatchtech, which signed a licensing deal worth up to AU$279 million for its Xeglyze head lice treatment. Starpharma signed a licensing deal worth up to AU$650 million with AstraZeneca for its dendrimer drug delivery platform and Fibrotech was purchased by Shire in a deal worth up to AU$600 million for new class of drugs to treat fibrosis. Spinifex was purchased by Novartis in a deal worth up to AU$1 billion, for its treatment of chronic pain in what has been described as the biggest deal on record in biotech and most successful venture capital exit in Australia’s history.
Dr Lavelle also told the event that investors in research-intensive companies can benefit from Government programs, such as the R&D Tax Incentive that provides and a 45 per cent cash refund for research and development for small companies and the newly legislated tax break for investors in start-up companies may be applicable.
AusBiotech has produced two resources for biotechnology boards, which also provide valuable information for investors: The Code of Best Practice for Reporting Life Sciences Companies (the Code) and the Guide for Life Science Company Directors (the Guide) are available at the AusBiotech website.