Invested in health

MARKET INSIGHTS

Invested in health

Demand will never cease for a market class that offers long-haul investors much more than just financial returns

DAMON BIRRELL

Just a few years ago, it’s fair to say biotech and medical research weren’t exactly the hot topic of dinner table conversations. Cue the pandemic and it became almost impossible to traverse a conversation without a mention of Delta or Omicron, mRNA vaccines, Pfizer or Moderna. The spotlight was firmly on the sector and the world was watching.

Globally, Australia has long been recognised for its biotech strength, and this was again demonstrated at the start of the pandemic. Australia was the first country to isolate and sequence the virus, sharing this important genetic information with countries and pharmaceutical companies and underpinning the design and development of the vaccines that followed.

Commercially, home grown success stories like CSL and Cochlear are well known, but more often success comes in the form of early acquisition or licensing of Australia’s innovations by Big Pharma before these opportunities reach the public market, leading to them being developed and commercialised offshore. There are several reasons for this, but one key factor is the depth of capital required to take a drug through development to market. The US alone represents around 50 per cent of the total global pharmaceutical market by expenditure, fuelling a burgeoning biotech sector well positioned to respond to public demand for access to the very best and latest medicines.

In parallel, Australia’s biotech sector has experienced rapid growth over the past decade, and will continue to do so, due to several factors unique to the sector. The first is that biotech is ultimately recession-proof and has continued to deliver stable returns over the long-term. Like any investment class, biotech is subject to the same forces that drive overall market sentiment, like the recent drop we have seen across all sectors driven by the pandemic, war between Ukraine and Russia, and inflation concerns. However, while biotech experiences the same market fluctuations, it is rare for the sector to ‘bust’ due to the unwavering demand for medicines and healthcare services, irrespective of the macroeconomic environment.

The second, is that on all measures, Australia ranks in the top four to five countries globally in terms of our medical research and biotechnology capabilities, resulting in a similar level of medical discoveries. With strong, long-term commitment to the sector from successive governments, this level of innovation and output will only increase in the coming years as the impact of the newly minted $20 billion Medical Research Future Fund starts to generate research outcomes.

Thirdly, investors are increasingly focusing on sectors where their timeline from initial allocation or exploration licence to when the resource is harvested and revenues commence can average around 10+ years, if successful.

This compares favourably with biotechnology, where a drug can take between 7-15 years to reach approval, and if successful, also delivers positive healthcare outcomes.

Damon Birrell

investment dollars have a positive impact on society, and biotech is a sector well positioned to meet the environmental, social and governance considerations of the modern institutional and retail investor. One of the really appealing aspects of biotechnology as an investment class is that when a portfolio company outperforms, success is correlated with the fact that their therapy, device, diagnostic or service is positively impacting the lives of patients.

In terms of timelines to market, the inherent complexities in developing medical technologies can mean biotech takes longer to generate investment returns compared to other assets. While in many cases this is true, I would compare this to an investment class very familiar to Australian investors – the mining sector – where the

“Investors are increasingly focusing on sectors where their investment dollars have a positive impact on society”

FEATURED

COMPANIES

As Australia’s biotechnology body AusBiotech releases its ten-year plan to boost the sector, investors stand to make big returns from one of the nation’s fastest growing industries. Meet the companies at the forefront of our pursuit of health and wealth.

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AdAlta (1AD) Adherium (ADR) Alcidion (ALC) Alterity Therapeutics (ATH) Amplia Therapeutics (ATX) Anteris Technologies (AVR) Argenica Therapeutics (AGN) Avecho Biotechnology (AVE) Chimeric Therapeutics (CHM) Creso Pharma (CPH) Dimerix (DXB) EBR Systems (EBR) Elixinol Wellness (EXL) Emyria (EMD) EZZ Life Science (EZZ) Imagion Biosystems (IBX) Imuron (IMC) Incannex Healthcare (IHL) INOVIQ (IIQ) Island Pharmaceuticals (ILA) Kazia Therapeutics (KZA) LBT Innovations (LBT) Medlab Clinical (MDC) MGC Pharmaceuticals (MXC) Microba Lifesciences (MAP) Orthocell (OCC) Osteopore (OSX) Patrys (PAB) PharmAust (PAA) Prescient Therapeutics (PTX) Race Oncology (RAC) Radiopharm Theranostics (RAD) Skin Elements (SKN) Starpharma (SPL) Trajan Group (TRJ) Vectus Biosystems (VBS) Volpara Health Technologies (VHT)

Companies included in this Feature Companies section are advertising clients of Stockhead. The articles in this section have been developed in association with the companies featured. The views, information or opinions expressed in these articles do not represent the views of Stockhead. Stockhead does not provide, endorse, or otherwise assume responsibility for any financial product advice contained in these articles. *Figures for Market Cap and Share Price were sourced from asx.com.au