tardy institutions get on the buy-o-tech bandwagon

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    Tardy institutions get on the buy-o-tech bandwagon

    June 25, 2003
    IF leading biotechnology research house Intersuisse had asked Australian institutions to attend a presentation just two months ago, it would have been laughed at.

    But the institutions now realise there's a boom on, and they're looking for a slice of the action.

    So when skin cancer leader Epitan made a presentation yesterday, most of the institutions turned up – they don't want to miss another Amrad.

    The Intersuisse biotechnology index has risen 37.5 per cent since its low point on March 11, because of buying by day traders and speculators. The best performers were Eastland Medical, Clinical Cell Cultures, Genetic Technologies, Benitec, Epitan and Meditech.

    Although the biotech boom is showing signs of temporary overheating, the institutions have yet to enter the game.

    Two events have fuelled the boom in the US, the UK and Australia.

    First, there are large volumes of spare cash looking for a place to make money. And second, the world realises the global drug giants have run down their pipeline of new drug research ideas and must deal with the small biotech companies that have achieved promising breakthroughs.

    And so Merck will inject up to $167 million into Amrad to develop new drugs to fight asthma and other respiratory diseases.

    Chemeq shares have risen more than 160 per cent because of its breakthrough in removing antibiotics from stock feed.

    Norwood Abbey has secured the funding to test its thyroid research in the US and Europe but is looking for a partner.

    Prostate research is much less advanced than breast cancer and AIDS research, but prostrate problems among baby-boomer Western males are set to explode medical bills in the next two decades. German drug giant Schering and the US Department of Defence both believe Australia is one of the two or three best nations in prostate research. Both have backed the Monash Centre for Urological Research and its chief, Professor Gail Risbridger.

    The US Department of Defence spends billions on medical research, but only allocates funds outside the US when it encounters research work at the cutting edge of global technology.

    Australia was late on the scene in the information technology boom and as a result we missed a lot of the pain that came with the IT collapse.

    In biotechnology, our companies are much smaller and have lower market capitalisation, but we are in this boom on the ground floor.

    Australian biotech administrative overheads are higher than their overseas counterparts' but our research costs are lower.

    That's important, because it can take 15 years between discovering a drug and yielding revenue.

    Australian companies will need to take their research and development to the US and Europe if they are to achieve global markets – an expensive operation that is difficult to fund from the Australian capital market. Almost certainly we will sell out our research and then have to buy back the products.

    Australia has about 60 listed biotech companies and many of them are at the cutting edge in the fields of their development. Others should not be on the list. And most will need cash in about 12 to 18 months.

    Among those at the cutting edge are Ventracor, Optiscan and Compumedics. And there's no doubt that Chemeq's discoveries in animal feed are a global breakthrough.

    Norwood Abbey's discovery – that an existing class of drugs called GnRH analogues can enable the thymus to grow and produce T-white blood cells to replace those destroyed by chemotherapy – is arousing interest.

    But there are so many that the industry cries out for rationalisation. There is a similar problem in the US where Idec Pharmaceuticals and Biogen have agreed to a $US6.4 billion share swap, but the market didn't like it because it couldn't see sufficient synergies.

    It is going to be much harder to undertake mergers now that biotech stocks are back in the boom times.

    Robert Gottliebsen writes four columns a week for The Australian and broadcasts each night on ABC Asia Pacific TV.
 
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