The Incest of ASX Biopharma

It’s pretty hard to beat the Brits when it comes to situational comedy. As a dual-Australian/Canadian national educated in the UK, I suppose I have an intrinsic affinity for that dry, offhand style of humour. A few years ago, I stumbled across a brilliant comedy skit that visually captures precisely the fundamental reason why ASX biopharma is so average. Everyone has their hand on each other’s nether regions, and the whole sector is effortlessly incestuous.

Worth a minute of your life and a good belly laugh.

Let me illustrate this in a less comedic and more semantic fashion. Below is an image of most of the companies I have discussed since the inception of this site. Many of these companies feature as “picks” in both the Biotech Daily and Bioshares. I don’t know if they are picks because people think they are good in “absolute” terms or they are just relatively good compared to the flotsam out there (i.e. “less bad”), but most of these are companies that I wouldn’t personally put my money into as a “passive” investor because I don’t simply don’t consider them to be investments. They are speculations at best. Punts*. Certainly not – on the whole – based on science or technology that is going to impact human health.

ASX biopharma/devices connectivity map between key executives/entrepreneurs. It is not fully exhaustive, or timelined, but gives you a sense of who has been involved with what company. Red companies are dogs (in my opinion), yellow means I am ambivalent. The green means I think it is an ok company...

ASX biopharma/devices connectivity map between key executives/entrepreneurs. It is not fully exhaustive, or timelined, but gives you a sense of who has been involved with what company.
Red companies are dogs (in my opinion), yellow means I am ambivalent. The green means I think it is an ok company…

I note that this graphic has been visualised to optimise the clarity of the connections between individuals and companies. The few green companies are firms that I think are possibly interesting (that is not a “buy” recommendation or a financial endorsement), the orange companies mean I am somewhat indifferent about them (i.e. I don’t have a strong viewpoint that they are good or bad, they may have some merit) and the red colour means I think that the company is very poor quality / not investment-worthy. A lot of red there…

I considered adding a “deep red” category for firms that I consider to be living dead, but it was too inflammatory and even I have limits to my willingness to urinate in my own bathtub.

In terms of the executives themselves, I am not – in any way – implying a poor quality or a “peer” group of mediocre people. There are some individuals in that network that I truly respect and appreciate, a few really good entrepreneurs, investors and scientists. Not very many, but a few. The point is to show the level of cross-connectivity between companies, between boards and essentially the fact that the ASX “long tail” culture that I fundamentally despise is driven by a relatively small number of individuals. There is also ZERO diversity in this group. Sure Tracie Ramsdale and Cherrell Hirst sit on a couple of boards and we have a handful of female CEOs, but overall this is basically a white, middle-aged boys club that has been doing this together for the thick-end of a couple of decades. Obviously the list of companies that have been touched by these gentleman (and I mostly don’t mean “touched” in a nice way) is not exhaustively represented here either.

Although I have thrown in a few names to show the level of information and cultural cross-talk between companies, a handful of these individuals are pretty much incidental. Sure, they serve to illustrate that the gene pool is pretty shallow, and that everyone is a bunch of “mates”. But when you really look at who is driving the bus here by segmenting by degree of connectivity you start to get a very different picture of who is really behind the wheel of the sector.

"Grey" individuals perform some key cross-board connectivity, but are minor players on the whole. Yellow are moderately active. The reddy/orange guys are the repeat "players". Gozlan probably deserves to be in the "heavy hitter" bucket because of financing activities and the fact that he is the only "buy-side" representative in this network.

“Grey” individuals perform some key cross-board connectivity, but are minor players on the whole. Yellow are moderately active. The reddy/orange guys are the “players”.

What this graph shows you, is that less than 10 guys (the reddy/orange colour) have impacted 100% of these companies at some stage. Obviously this company list is not exhaustive either – so let’s say a “bakers dozen”. And this is fundamentally why the ASX life sciences / healthtech sector sucks. It’s just the same bunch of chums, doing the same old (mostly) scammy deals, refreshing assets in the same public shells. Some of these guys have never actually produced a company of any credible value and there are precious few products that have actually attained commercial success, represented by this group. In fact, I would argue that virtually all of Australia’s successful biomedical exports have been achieved by people NOT part of this group.

To conclude, this is the reason why I do not passively invest in this sector. I get a lot of abuse on trading forums that I am obviously “missing out on all the fun”. Yeah, I am, because I fundamentally don’t know how to make a buck out of this (mostly) shitbag landscape of companies and the people who run them. What I can tell you is that shareholders are not getting rich (except a few early ones that are in on the deal) and patients are not – on the whole – benefiting either. Day traders are probably doing ok, because they intrinsically understand this network and the culture that it represents, and many of them even collaboratively exacerbate it. They see the predictable patterns of behaviour and know that they can take a little money off the table for playing along.

Time for a shakeup.

 


If anyone wants the PowerPoint file I used to make these diagrams, you can download it here.

*In the Anglo vernacular, not the American English vernacular.

22 thoughts on “The Incest of ASX Biopharma

  1. Great post, Chris.

    You’ve done lots of work putting that together and you demonstrate the interconnectedness case very well. I don’t know my racehorse analogies very well, but it’s a bit like several horse trainers managing their stable of Melbourne cup racehorse hopefuls and often co-managing their trainer-friends horses as well. I guess investors would hope their race horse manager is a Bart Cummings, who has managed to produce 12 melbourne cup winners with 11 horses.

    Maybe our guys managing our stable of ASX biotech hopefuls have got full stables, but aren’t producing too many Melbourne cup winners. But Australians, being great punters, are happy to place a bet anyway.

    It would be a shame if we had some great potential “Melbourne cup winner” biotechs that are getting overlooked because the regular “horse trainers” don’t go looking for them; they just wait till the hopefuls are brought to them by horse brokers or something?!!!!

    I don’t know the process involved in how a Rhinomed or Medibio or any of the new biotech hopefuls managed to get themselves listed. I do know once a biotech company gets listed, the company rarely dies when its “racehorse hopeful” flops; instead the biotech company just goes shopping for a new “horse”, presumably one that will appeal to people who like to bet of horses!

    Interesting. So who are the best horse trainers in the asx biotech sector? I guess you’d work backwards. Which biotechs ended up winning the equivalent of the Melbourne Cup, and who “trained” them to get there?

    Liked by 1 person

    • I think your analogy sort of works, especially since I don’t consider most of these companies to be investments. An investment is something that had an underlying business thesis behind it, not the social dynamic of reacting to continuous disclosure rules, mostly around meaningless commercial events.

      The truth? Our best horses go overseas and don’t play in this space. Our biotech “Melbourne cup” consists of mostly lame horses, with very few exceptions. The one or two firms that get confident enough to believe their own bullshit eventually dual-list, and usually suffer greatly for it. To be clear, the US market is not immune to quackery either – there are plenty of dodgy companies lounging about in the Pink Sheets. But that’s why they have Pink Sheets / OTC, and why performance and market cap is always the “pressure point” for a listed company, to keep performing.

      Notwithstanding that I actually like Kris Knauer (and MediBio may yet surprise us) this is an example of your “horse” that has been topped up with a fresh batch of steroids and let loose again. Rhinomed – well, it is also a “re-run” but at least the jockey is going to be able to breathe well! It shocks people to know that I actually like Rhinomed, not because it is good technology (it isn’t, it’s a bit of plastic in your schnoz) but because it is very good marketing of a PRODUCT.

      Anyhow, it is my personal to muck out the stable and put some fresh horses in it. That might involve training a few horses to be better (like Circadian, Tissue Therapies, etc.) and it might involve getting out the old shotgun. Needless to say, if you consider that network diagram, I am generally not making friends.

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  2. It’s interesting, Chris, that Holaday was appointed to the Neuren Board in 2013 alongside Hancox and Treagus. That could represent quite a historic show of confidence, cross-pollinating him from QRX. I’ve not been watching long and that had slipped by me. I guess this kind of connection will be worked through in relation to the class action purported to be underway in the USA which covers shareholder entry from 2011. It’s hard to distinguish red and oranges on your top graph, but I found it interesting, thanks.

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    • I would imagine you are correct. I have fixed the color scheme to be a bit more intelligent based on your feedback. There were also one or two link errors (a lot of links on that page!).

      Thanks for reading.

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  3. I appreciate the obvious effort you have gone to with this piece. I am however wondering if you have overreacted to Clinuvel with its “very poor quality rating” and whether this is related to the Roger Aston connection. You have written eloquently in the past regarding your respect for this gentleman. He has not been a director or associated in any way with Clinuvel for 5 years and prior to that was there for 5 years only.

    Clinuvel have taken a NME from phase 1 to EMA approval for a previously untreated orphan indication. It has also has been selling for 5 years under special license in Italy and several years in Switzerland, where it continues to be provided to patients from the rest of Europe and US whilst the EMA satisfy themselves with post marketing requirements.

    Two company sponsored trials were recently reported in a NEJM article and although the trials had technical failings it didn’t seem to bother the editors of the highest impact factor medical journal.

    From my reading of your posts I thought approval in a major market and publication in a high quality journal with minimal fanfare were exactly what you were hoping to see more of.

    Anyway, I respect what you are trying to do and appreciate the effort. I have a personal financial interest in you being wrong on this matter.

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  4. Great Post… You have put in a lot of work.. Now I see the problem with innovation and management of ASX Biotechs. Its all the same people running different shows. If I may ask, is the issue that Australia lacks a big talent pool of experienced biotech director/CEOs ??
    Cheers

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  5. “Needless to say, if you consider that network diagram, I am generally not making friends.”

    But reckon you are getting talked about!

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  6. Rhinomed? RHINOMED? Is that the same company that made a $4.5 m loss in the last 12months, and $3.3 and $19.6m in the previous two years? That’s sellling (but not very well) a product that has no identifiable clinical benefit? That paid its CEO $429k total last year? That paid Martin Rogers $637 total last year? But it’s good because it’s marketing a product…………dodgy conclusion I feel. And I stared at the TV during the Tour but I couldn’t see a single bit of plastic in Chris Froom’s nose!

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    • Now now Peter – you are starting to sound like me.

      I realise that this is a credibility-destroying position I have taken (and all your points are well made and I agree – especially regarding compensation) but they are at a crunch point now with finances and either they can articulate a future or they can’t. It is a consumer health product and 3 years to get traction is “reasonable”.

      I choose to draw attention to the company because – and this is the key – if it fails it will be Martin’s last.

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  7. We all have our pet hates. Mine are rhinomed; (how can a company have a valuation above a couple of million for a bit of plastic?) and Isonea (I could probably find an apple app for what they are trying to do) but my favourite is goconnect (GCN) which has managed to survive for several years on about zero income. Where are the regulators? On a positive note, and I know it’s not biotech, but next Friday I’m going on a second tour of a gold mine near where I live -scotgold (sgz) – and I don’t even know why I’m telling you this but it’s a better prospect than most biotechs!

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    • That’s fine. To be clear, there are MANY things I don’t like about Rhinomed. Don’t get me started on iSonea. It’s Monday morning and I am already in a foul mood.

      Peter – why don’t you write a counterbalance piece on Rhinomed to my sarcastic reviews. 4-600 words. I will post it for you ….

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      • I would like to see the other Peter’s assessment of Rhino as well. I’m less concerned by the remuneration than the technology. It looks like pseudo-science but it’s a very long way from my area of expertise so I’ll reserve judgment.

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      • It is pseudo science. I have definitely acknowledged that. But then so is Gatorade. You have no idea how much in pains me to actually like a company started by Martin Rogers. I guess the point is that success is not just about the product, it’s how you take it to market. It could well be that I am sucked in but if that is the case, I will own up to it in due course.

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    • Seems appropriate, Peter. You are one of my harshest critics, but you also normally say something intelligent. I shall look forward to the first guest post. Try not to gouge my eyes out too much 😉

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