BIO-GUIDE BRIEF: OUR NEW YEAR RESOLUTION – FAIR VALUE IPOs
December 21st 2008 04:15
Thursday December 18, 2008
Daily news on ASX-listed biotechnology companies
To read all these articles in full, subscribe to Biotech Daily at the link above or at www.biotechdaily.com.au
MARC SINATRA’S BIO-GUIDE BRIEF: A NEW YEAR’S RESOLUTION FOR BIOTECH
I have a very simple rule when it comes to investing in initial public offerings (IPOs) of biotech companies: Don’t.
They are almost always over-valued and I can get on cheaper later. Cellestis and Pharmaxis are the only companies that investors would have done well long-term to get on at the IPO, excluding the big caps.
Another rule I have is don’t buy anything that hasn’t been listed for at least a year.
The reasons for this rule are multi-fold, but a lot of it comes down to the fact that biotech prospectuses are often highly polished to support optimistic valuations and it takes a while for a true picture of the company to emerge.
A supplementary prospectus lodged by Cellscreen Direct regarding its current IPO highlights why I have these rules.
In the original prospectus, the market for HPV testing is put at $4 billion dollars. It turns out that the market is really about $200 million, as acknowledged in the supplementary prospectus.
If the company is basing its IPO price on the former market size, it has been well and truly overvalued. The supplementary prospectus also makes it clear that the product cannot be distributed straight to Australian consumers as the company seems to imply.
All of a sudden, Cellscreen Direct’s marketing strategy looks shaky. If you read the full 84 page prospectus carefully, you can pick up on these issues, but you do have to fight your way through the spin.
Then, of course, you have to figure out what the prospectus doesn’t tell you.
Drawing on personal experience, I can say that there are other issues with the company’s marketing strategy, such as the fact that doctors don’t like receiving test results for a patient they may not have seen in years and the likelihood that they will not take such results at face value.
The problem for the biotech industry is that poor post-IPO performance drives investors from the sector and, eventually, the industry will have to improve their quality to attract investors back, but this will take time and there will be casualties.
The sooner the industry realizes this and starts to behave accordingly the better it will be for all.
So, I hope the industry’s New Year’s resolution will be to follow the old adage and leave something on the table for the next person. That means valuing the company at a fair price that leaves some upside. Everybody wins that way.
Marc Sinatra
To read all these articles in full, subscribe to Biotech Daily at the link above or at www.biotechdaily.com.au
| 74 |
| Vote |
Add To: 
subscribe to this blog
Comment by Anonymous
And allthough the current market size is estimated to be $200m, it is believed that this will grow to between $1-$4billion, when it becomes more accepted around the world that HPV testing should be the primary test for screening for cervical cancer.
This Company has also an extremely strong board including the ex Federal Health Minister, the Hon Dr Michael Woodridge, and Executive Chairperson of STW Group, Mr Russell Tate plus Ex AMA Head Professor Kerryn Phelps, Professor Brian Morris, Professor Michael Quinn and UK Cancer Expert Professor Albert Singer.
I am a woman and I can appreciate the importance of HPV testing. I also love the idea of self sampling in the privacy of your own home using a simple tampon. It is just faboulous!
Although I am usually reluctant to invest, I will definitely in this case because I think it is an excellent product backed by an awesome team of professionals. Well done and good luck.