Biotech sector is showing all the early symptoms

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    Biotech sector is showing all the early symptoms

    By Michael Evans

    October 12, 2005

    Biotechnology stocks are undergoing a heady re-rating after recent headline-grabbing efforts from Biota Holdings and CSL have pumped about $2 billion into the sector in the past month.

    But analysts are warning that companies must continue to hit key milestones to justify strong share price moves.

    Interest has been stirred amid reports of Nobel Prize-winning Australian scientists, CSL's involvement in a breakthrough cervical cancer vaccine and the prospect of Biota benefiting hugely from fears of an outbreak of an avian flu pandemic.

    Tolhurst Noall analysts said: "We are in the early stages of a biotech bubble inflating.

    "We are in Phase I of a new cycle. Biota has injected $318 million into the sector from bottom to top. CSL has injected $1 billion of new wealth in the last month. It is big stuff and it's spreading."

    Biotech investment house eG Capital has seen its biotech index rise 10 per cent in the three months to the end of September, compared with 9 per cent for the All Ordinaries, after lagging for the past year.

    The head of research at eG Capital, Athol Maritz, said: "There's definitely a sense that we've been sitting at the bottom for a fair while now.

    "We've had a view here that it really only required one or two companies to reach a key milestone and that would set a bit of a burner under the market."

    "The [biotech] market has been very depressed for the past year and unduly so. There were a lot of companies sold down, and rightly so - but other good ones that were trampled in the rush."

    Aside from CSL and Biota, smaller biotechs have been delivering positive progress.

    Junior drug developer Pharmaxis recently revealed a deal raising more than $70 million from local and overseas investors in one of the largest biotech capital raisings in years.

    Pharmaxis develops a range of drugs to treat chronic respiratory and auto-immune diseases.

    SciGen, which recently secured a deal to distribute a hepatitis vaccine in China, has seen its share price double this week.

    But eG Capital's Mr Maritz said other stocks were running purely on a swing in sentiment, stressing that "companies hitting milestones" were the key to a continued re-rating in the sector.

    "That's what moves the market," he said.

    Imugene, which is working on a bird flu drug, has seen its share price nearly double despite replying to an ASX speeding ticket that it had no news to report.

    The renewed interest in biotechs has seen others tap the market for capital, such as AtCor Medical, which announced yesterday it was looking to raise $15 million through an initial public offering.

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