ChemGenex: Who Likes Biotechs?
November 16th 2006 11:59
If you, dear reader, are an investor, do you buy biotech stocks?
The news today, 16 November 2006, is that Melbourne based biotech company ChemGenex “has won the right for its lead drug to be accelerated through the US Food and Drug Administration approval process.”
The biotech “expects its cancer drug Ceflatonin to be in the market by 2008.” The drug is aimed at combating “myeloid leukaemia (CML)” in patients “who have developed resistance to drugs”.
ChemGenex “expects its cancer drug Ceflatonin to be in the market by 2008.”
A securities analyst from Patersons Securities, Mattijs Smith, said “It won’t happen in the first year but Ceflatonin could generate revenues of $100 million-plus a year for ChemGenex. From that perspective the company is undervalued”.
This news appeared in the online version of The Age, www.theage.com.au, under the title: “Leukaemia drug on $100 m fast track” and was written by Nabila Ahmed. Click here to open this page: http://www.theage.com.au/news/business/leukaemia-drug-on-100m-fda-fasttrack/2006/11/15/1163266638196.html
How does biotech works? So far as I know, it starts with some bright idea and then goes into research and development, which often spends enormous amounts of money and takes years to come up with a product proposition.
Next, the new product has to be submitted to the authority that will approve it for manufacturing and consumption. In the US that is the FDA, Food and Drug Administration. Since the US is such a large market and approval by the FDA often points to approval by other administrations, most biotech companies go down this path. Approval by the FDA, though, could take as long as five years.
When, finally, the biotech receives green light, it licences the manufacturing of the drug and then, and only then, it starts making money on its drug project started so many years before.
The author of the article above mentions revenues of “$100 million-plus” a year to expect from Ceflatonin. Once you know it’s been approved, you can start buying ChemGenex Pharmaceuticals Ltd (ASX: CXS), I suppose. Problem is: so will everybody else who likes biotech. Prices will likely jump up and soon become prohibitive.
I find the whole biotech story uninteresting.
Look at a five year price chart (which you can find for free in www.netquote.com.au) and you will know what I mean: the price line is wildly erratic, constantly oscillating between the extremes of four and seven cents.
There is nothing in this company’s price chart that would let you guess with the minimum of reliability what the price will be next year, and I’m not into Chartism.
And if you look into the last six years net profit figures (which you can find for free at http://money.ninemsn.com.au) which are all losses, you will know what I mean.
Biotechs, typically, invest a lot into one product, take it trough the various stages of development until manufacture and sale and make, if they are lucky, a big bag of money. Then, the product becomes outdated and biotechs have to re-start the whole process again. No wonder their price oscillates so much.
As I envisage, biotechs only matter for speculators. For me, putting money into this type of business is the same a putting it on top of the gambling table in the casino, and I don’t do that because then I wouldn’t be able to sleep by night.
Instead, I like companies like Woolworths Ltd, (ASX: WOW) which are stable and predictable, have constant cash flows, always post fat net profits and, on top of all this, have an ability to grow continuously. Not surprisingly, its price chart looks like a rocket constantly aiming at the blue sky. Wow!
Biotechs, instead, aim erratically to the right and to the left.
End
The news today, 16 November 2006, is that Melbourne based biotech company ChemGenex “has won the right for its lead drug to be accelerated through the US Food and Drug Administration approval process.”
The biotech “expects its cancer drug Ceflatonin to be in the market by 2008.” The drug is aimed at combating “myeloid leukaemia (CML)” in patients “who have developed resistance to drugs”.
ChemGenex “expects its cancer drug Ceflatonin to be in the market by 2008.”
A securities analyst from Patersons Securities, Mattijs Smith, said “It won’t happen in the first year but Ceflatonin could generate revenues of $100 million-plus a year for ChemGenex. From that perspective the company is undervalued”.
This news appeared in the online version of The Age, www.theage.com.au, under the title: “Leukaemia drug on $100 m fast track” and was written by Nabila Ahmed. Click here to open this page: http://www.theage.com.au/news/business/leukaemia-drug-on-100m-fda-fasttrack/2006/11/15/1163266638196.html
How does biotech works? So far as I know, it starts with some bright idea and then goes into research and development, which often spends enormous amounts of money and takes years to come up with a product proposition.
Next, the new product has to be submitted to the authority that will approve it for manufacturing and consumption. In the US that is the FDA, Food and Drug Administration. Since the US is such a large market and approval by the FDA often points to approval by other administrations, most biotech companies go down this path. Approval by the FDA, though, could take as long as five years.
When, finally, the biotech receives green light, it licences the manufacturing of the drug and then, and only then, it starts making money on its drug project started so many years before.
The author of the article above mentions revenues of “$100 million-plus” a year to expect from Ceflatonin. Once you know it’s been approved, you can start buying ChemGenex Pharmaceuticals Ltd (ASX: CXS), I suppose. Problem is: so will everybody else who likes biotech. Prices will likely jump up and soon become prohibitive.
I find the whole biotech story uninteresting.
Look at a five year price chart (which you can find for free in www.netquote.com.au) and you will know what I mean: the price line is wildly erratic, constantly oscillating between the extremes of four and seven cents.
There is nothing in this company’s price chart that would let you guess with the minimum of reliability what the price will be next year, and I’m not into Chartism.
And if you look into the last six years net profit figures (which you can find for free at http://money.ninemsn.com.au) which are all losses, you will know what I mean.
Biotechs, typically, invest a lot into one product, take it trough the various stages of development until manufacture and sale and make, if they are lucky, a big bag of money. Then, the product becomes outdated and biotechs have to re-start the whole process again. No wonder their price oscillates so much.
As I envisage, biotechs only matter for speculators. For me, putting money into this type of business is the same a putting it on top of the gambling table in the casino, and I don’t do that because then I wouldn’t be able to sleep by night.
Instead, I like companies like Woolworths Ltd, (ASX: WOW) which are stable and predictable, have constant cash flows, always post fat net profits and, on top of all this, have an ability to grow continuously. Not surprisingly, its price chart looks like a rocket constantly aiming at the blue sky. Wow!
Biotechs, instead, aim erratically to the right and to the left.
End
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