Biotech’s the way of the future

Australia’s much neglected biotechnology sector is due for strong growth in the coming months, according to a specialist investment firm.

eG Capital senior research analyst Ben McCaw said that a number of forces are aligning to produce conditions supportive of the current crop of advancing Australian biotechs.

Under the eG Capital proprietary indices, the sector demonstrated robust growth in 2007, with a 20 per cent increase.

“As most analysts in the US view the sector to be very bullish in the coming years, and given the increasing correlation between our local biotech sector and the NASDAQ biotech sector, this helps to justify the case for strong growth,” he said.

McCaw conceded that too often in the past numerous promises for growth in the sector never eventuated, but believes 2008 will be a certainty for investors as listed biotechs come to maturity.

“The next 18 months will see a record number of biotech companies, around 25, entering the final stages of their drug development cycle. This is called phase three of the clinical trial period, the last hurdle before applying for regulatory approval and marketing of the product [begins],” McCaw said.

“And given the importance that the biotech sector has in news coverage as their products come out, we’re going to see some milestone announcements that the investment community will certainly notice.”

McCaw said global demographic changes, such as the ageing population in the West that is living longer and healthier and the growing middle class in emerging nations, will see the healthcare sector increase in importance and fuel strong demands for biotech products.

“Another important driver is the appetite that big pharmaceuticals have for biologics. With the rise of generics and expiring patents, large pharmaceutical companies are beginning to look to local biotech companies and their non-traditional therapeutic products,” he said.

eG have identified a number of Australian biotechs they believe will perform strongly in 2008, including Peplin, Progen Pharmaceuticals, Avexa, Heartware and ChemGenex Pharmaceuticals.

McCaw said despite the strong interest shown in the industry, it has still been a “hard sell to date, with limited success. There is the perception amongst investors that the sector is high risk, but it really depends on what company you’re looking at. There is a big difference between the high quality and low quality biotechs,” he said.