How US biotechnology bull run will affect Australia

How US biotechnology bull run will affect Australia

PUBLISHED: 15 HOURS 2 MINUTES AGO | UPDATE: 6 HOURS 46 MINUTES AGO

The Australian Financial Review

JESSICA GARDNER

The lower Aussie dollar, a well regarded local clinical trials industry, and a frothy US biotechnology industry, are combining to make early stage Australian life science companies attract­ive. Although the right qualities are falling into place, not all industry watchers expect a spate of takeovers. A partner at early stage investment fund GBS Ventures, Brigitte Smith, said in comparison to the US, where the biotechnology sector was “on fire”, Australian life science companies do appear cheaper. “It has been a really big, long sustained bull run on biotech IPOs, for the best part of a year,” she said. “Because of that, the biotech sector in the US is looking pricey.”Twenty-nine companies have listed in the US so far this year. The Nasdaq Biotechnology index has gained about 116 per cent in the past two years, compared to a 43 per cent rise in the broader market, represented by the S&P500.

Mergers and acquisitions adviser Ben McLaughlin expects to see more acquisitions of local companies. As well as being cheaper than their US peers, Australian life science companies also have a reputation for being run by accomplished scientists, Mr McLaughlin, a partner at law firm Baker & McKenzie, said.

“We’ve got very high quality universities and R&D [research and development] facilities and a lot of that spills out into the biotechnology industry.”

Mr McLaughlin also said Australian companies were in demand due to a well regarded clinical trials industry, which is worth about $1 billion annually, according to Austrade. The sector attracts foreign investment of about $450 million.

Mr McLaughlin expects Japanese pharmaceutical giants, which are battling against a declining population and falling prices, to be keen acquirers.

He has noticed an increase in interest from these firms, as well as their investment bankers shopping around for deals. A group of Baker & McKenzie’s life science M&A lawyers travelled to Tokyo in June. “Some of the clients did express interest in expanding into Australia,” he said. “Since then we have had approaches form investment bankers looking at potential deals.”

POPULATION DECLINE

Mr McLaughlin said Japan’s pharmaceutical industry is shrinking due to population decline and price deflation. Cashed up companies are looking across national borders for growth and, at the same time, a number of well known Japanese electronics companies such as Hitachi and Toshiba have established healthcare divisions to tap into the global demographic trend of an ageing population.

Mr McLaughlin acted for Japanese company Nikkiso on its acquisition of Baxter Healthcare Australia’s continuous renal replacement therapy [CRRT] business. The transaction, the financial details of which are undisclosed, was given approval by the Australian Competition and Consumer Commission last week.

The deal was sparked due to the global $4 billion acquisition of Swedish company Gambro AB by US-based Baxter International, which had to satisfy competition regulators in a number of countries.

In Australia, the ACCC decided did not oppose the deal after Baxter agreed to sell its CRRT business, which supplies products for dialysis. Sufferers of kidney failure require regular dialysis to remove waste products from the body. Baxter and Gambro are the largest two of three suppliers of CRRT products in Australia, the ACCC said.

However the acting chief executive of life sciences industry group AusBiotech Glenn Cross said there was unlikely to be a boom in acquisitions, even though he agreed that Australian life science companies were proving attractive.

Instead, he said the foreign pharmaceutical giants were more inclined to do deals that fund a portion of research and development, in return for exclusive licensing agreements once new drugs have been approved for use.

Investing in early stage technologies in this way limits the risk for large companies, Mr Cross said. “They may well take an equity stake in the companies but we haven’t really seen a lot that would indicate that there is going to be a host of potential acquisitions,” he said.

Stewart Washer, the chairman of iSonea, which has developed an asthma monitoring device, said he expects to see more licence deals so large pharmaceutical firms can avoid the “corporate baggage” of acquisitions.

Maria Halasz, the chief executive of Cellmid, which is developing new diagnostic tests for heart attack, inflammatory diseases and cancer, said large pharmaceutical companies are not great at innovation, so it is more cost effective to outsource drug development in this way. “What drives this is dollars,” she said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

One Response to How US biotechnology bull run will affect Australia

  1. Pingback: Political parties could be behind Muzaffarnagar violence: Shinde | umodemo.com

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