The Sunday Age | 11 June 1995
by Wilson da Silva
UNDER-RATED and under-priced. That's how analysts view Australia's medical technology stocks. This is because investors particularly in Australia, which is new to the game are often mystified by the machinations of the industry. As a result, some good Australian investments with stratospheric potential tend to be left on the shelf.
Take Melbourne-based Biota Holdings. The company is a model for the successful medical technology stock, with a powerful anti-influenza drug well on the way to market, and a number of other promising research projects.
The world market for its influenza inhibitor drug GG167 is conservatively estimated to be worth US$500 million a year. This single drug holds such potential that one of the world's top three pharmaceutical companies, Britain's Glaxo, has rushed in to sign up as a partner, committing $1.7 million a year to Biota's research effort.
“The potential for Biota is fantastic. Biota has taken 10 years to take this drug to phase three, and the potential that it's got around the world is phenomenal."
“Biota is actually compared with many biotechnology companies, even larger ones very well off,” Dr Hugh Niall, chief executive of Biota, told The Sunday Age from San Francisco where he is talking to potential partners. “It's got one very advanced project and a couple earlier ones [in the pipeline]. I'm very encouraged. It's a small and very exciting company.''
Dr Niall's view is backed by investors, who have recently taken a shine to the company and helped drive the stock more than 31 per cent higher in the past few weeks to $1.70.
“The potential for Biota is fantastic,”says analyst Mr Michael Hynes of brokers Gillon Securities in Melbourne. “Biota has taken 10 years to take this drug to phase three, and the potential that it's got around the world is phenomenal.''
In response to client requests, Mr Hynes has spent the past eight months closely studying Australia's medical technology companies, visiting offices and analysing their potential, and developed an index for medical technology stocks.
What he found were a number of good investments that were largely overlooked by Australian investors. “They're very perplexed by the whole drug development process. It's a little bit complicated and high risk, and takes a long time to come to market,”Mr Hynes says.
Yet Australians are happy to plough sizeable sums into speculative mining companies that are often riskier bets than any of the medical research companies.
Yet Australians are happy to plough sizeable sums into speculative mining companies that are often riskier bets than any of the medical research companies, he says. Biota's major target is influenza. Its GG167 drug is the closest thing to a nemesis that the flu virus has ever had. It targets a chink in the flu armour first discovered by CSIRO scientists a decade ago, a structural feature common to all influenza strains.
Biota is also developing one of the holy grails of medicine: insulin that can be taken as a pill, rather than having to be injected. The original CSIRO team that led to GG167 is working with Biota along with Federal Government funding.
While the three partners warn that it could be a long shot, they see enough promise in the research done to have jointly pledged $6.4 million for further development over the next three years. The potential market for such a drug is estimated to be $5 billion a year. But despite this, Biota remains under-valued, according to Mr Hynes.
It is endemic of a lack of interest across the sector in Australia, a sector which is currently capitalised at $2 billion and growing. “There's some fantastic potential out there for these companies to be $4 or $5, and they're trading under $1 in some cases,” says Mr Hynes.
Among the investments that he considers, like Biota, to be under- valued are Polartechnics, Circadian Technologies, Norvet, Peptide Technologies and Inovax.
It is endemic of a lack of interest across the sector in Australia, a sector which is currently capitalised at $2 billion and growing.
Polartechnics is developing an optical probe that detects pre- cancerous tissue in the female cervix. The company claims its probe is 90 per cent accurate compared with 50 to 80 per cent for pap smears.
Sydney-based Norvet is conducting human clinical trials for its glucan-based healent that also acts as a stimulant for the body's immune system. The drug has been approved for veterinary application and the company expects to clinch a global distribution deal soon. The potential market is estimated to be worth $500 million a year.
Peptide Technologies of Sydney is developing a novel palliative for Aids sufferers, a market estimated at $500 million annually, while Melbourne-based Circadian Technologies which US pharmaceutical giant Eli Lilly is backing is developing, among other things, a jet-lag treatment for a world market estimated to be worth $100 million a year.
Inovax, a small Perth-based company, is also working on the oral diabetes problem, and has also attracted backing from Eli Lilly.
Its shares were temporarily suspended by directors last month until the outcome of its takeover of the $80 million Indonesian drug maker PT Penta Valent is known.
Wilson da Silva is a business writer for The Sunday Age .