It’s been an interesting year.
When I started this site I really didn’t know what was going to happen… in most respects, it has exceeded my expectations.
A Few Opening Remarks
On a positive note, I genuinely felt support for the mission of trying to create a fresh dialogue around the quality and transparency of ASX-listed companies operating in this space. It remains my contention that the major rate-limiting factor in Australian biopharma/health tech being truly world-class, is the conduct of its public companies. We just need to grow up and stop buying into the quackery. I’m all for being entrepreneurial but there are limits, especially when the shareholder base of our public biosciences companies is so retail-centric. In my opinion, this means a higher bar, not a lower one and we should be grateful that we have people willing to dip into their self-managed super funds to get behind Australian bioscience innovation. It’s kind of unique … and special. It deserves protection.
Sadly, however, a lot of our executives don’t feel this way – I was recently “pitched” a new public company concept where the CEO (you know who you are) admitted that the technology wasn’t that great, but that it was “good enough for a retail investor play” or something to that effect. Yuk. Investing in successful companies is supposed to be about value creation, not re-distribution of wealth.
Another positive trend I saw this year was the increasing willingness of shareholders to give under-performing management a hard time, especially when it comes to executive compensation. This is great to see, and we need more shareholders standing up at AGM meetings, questioning some of the eye-watering and completely misaligned compensation schemes out there. Almost nothing is more important than how a company is incentivised to behave through executive/board remuneration, and it needs to be performance-based (i.e. deliverables and outcomes), not driven by stock price. If stock price is the management team’s incentive focus, then every type of abuse will ensue. Indeed, it is ironic that retail shareholders often give management a hard time about stock price, yet don’t seem to care too much about product development delays, or missed clinical milestones. Something to think about.
On a less positive note, 2015 was a year of continuous abuse and aggression, ironically mostly from retail shareholders. I’ve mostly got used to it, but it occasionally still rankles. I had a few vexatious legal “shots across the bow”, which mostly amused me, but also consumed valuable time (and money). I also never intended for this site to become a whistleblower site, yet in the last 3 months I have had employees and business partners from roughly a dozen ASX-list companies come forth with serious claims of inappropriate behaviour from the leadership teams of those companies. Although this type of information is essentially unactionable unless one wishes to spend their entire life in court (and I am not a journalist, and so don’t have the appetite for a good “headline”), it has demonstrated to me that we still have a very long way to go. It also probably means that ASIC needs to do a lot more work to help make this sector run effectively, like an overhaul of continuous disclosure rules for a start. The current disclosure regime is just inappropriate for biosciences, it doesn’t work and it leads to systematic abuse.
Thank You Readers…
Although this site probably didn’t turn out to be the “fun” I had hoped it would be, I am deeply grateful for your readership. The site now enjoys about 30,000 repeat readers and a core cadre of around 1,000 people from our industry (entrepreneurs, government, executives, financial services professionals) who will generally read what I put out – often with constructive feedback and valuable contributions. I certainly get a lot of useful intelligence in response to my posts. In terms of readership geography, it remains a dominantly Australian readership base. However, international readership is growing fast and the site has a fairly rapidly growing US following (mostly financial services):
In terms of the companies that were most closely followed in this site (posts and links), Benitec (ASX : BLT), Neuren (ASX : NEU), Regeneus (ASX : RGS), Novogen (ASX : NRT) and Prima Biomed (ASX : PRR) are the absolute stand-outs. I got the most abuse in relation posts on Neuren and Anteo Diagnostics (I have essentially stopped writing about the latter). The most widely shared (and read) post was my article on the Incest of ASX Biopharma (though I should note for completeness that the feature picture was also the least-liked).
So what next?
Well, this will be my last post in the current “Long Tail” format. In 2016 this site will change in some quite dramatic ways. I will still keep this site content up as an archive but going forward the site will be more professional, analytical and probably less entertaining. The overwhelming feedback I got from readers is that you like the idea, you occasionally chuckled at my jokes, but mostly you just wanted the analytical content. Fair enough.
I thought I would leave 2015 with a few notes and thoughts to round out the year.
Long Tail Performance
I commented on 62 companies throughout the course of the year. Some of my readers apparently struggled to ascertain how I really felt I about individual companies because of my somewhat critical analysis style. For clarity, I have listed the companies I have covered below, my general sentiment (green = positive, orange = undecided/lukewarm, red = negative), and the share price performance since initiation of commentary on this site. For the retail investors I have also noted the maximum loss you could have made for the year, relative to the ending price of the equity on 31/12/2015. The point is to illustrate that investing in biotech/biosciences is super-risky and can wipe you out fast. Of the 48 stocks that I consider to be either “good” (relatively) or best-avoided, I got seven (7) wrong (blue) and I will comment on a few of those below. I should note this represents an 85% hit rate in both directions, so it’s good to see that amidst all the froth and hype, some basic fundamentals still apply.
The key message from this table is pretty simple. If one invests in quality science and quality management teams, one generally comes out ahead when it comes to biotech investing. It’s certainly a pity that retail investors can’t short stocks.
As I mentioned, there were a few companies that I got very wrong. Anatara (ASX : ANR) and Oncosil (ASX : OSL) are the two standouts, along with Imuron (ASX : IMC) and ResApp (ASX : RAP). I don’t consider any of these companies to be investment-worthy and so I would never have put my hard-earned cash into any of them anyhow. But obviously other people did, and did very well in some instances. The one that I am still very much up in the air about is Genetic Signatures (ASX : GSS). Some people, whose opinions I respect, think it has potential. But I just don’t see it. Nonetheless, it was also an example of an equity that did well for some. Of course, the elephant in the room is Tissue Therapies (ASX : TIS), the only “good” company that didn’t go up in the “fantasy” portfolio. Obviously this company personally represents a lot of hard yakka on behalf of shareholders in 2016, but it’s a challenge that I am very much looking forward to.
There were a number of disappointing outcomes this year – and I consider Alchemia (ASX : ACL) to be probably the biggest one. This company’s biopic is truly Hollywood (Bollywood?) class and should be written up as a business school case study in what happens to a biopharma company when corporate governance falls on its face. At every twist and turn of the saga, this company amazed me, particularly the way that within a matter of months the purported $100m+ value of the VAST assets were relegated to a $100k back-door transaction. Remarkable.
Mesoblast (ASX : MSB) and Benitec (ASX : BLT) were particularly disappointing because they have done their bit to entrench the notion of the “down-under discount” or “DUD”. What is that? Well, it is the discount factor that US bankers now apply to Australian bioscience companies as a matter of default. MSB and BLT were heart-breaking for different reasons. MSB was disappointing because it highlights the gap in quality perception between our domestic financial services industry and the more sophisticated biosciences investment landscape of the US. BLT was just a tragedy from the outset, and yet I think that Peter French’s departure (push?) was an unfortunate and probably unnecessary outcome. Sure the stock price got pummeled but I still think it is remarkable that the company even pulled off what it did. I respect Peter’s tenacity and, in hindsight, I am regretful that I gave him such a hard time.
Companies to watch in 2016
Obviously, the “orange” companies in the above table are interesting ones. If we had genuine “activist” investors, some of these companies would make truly interesting targets. For example, I would love to invest in Starpharma (ASX : SPL) because I think their basic technology platform is interesting. Unfortunately they are currently pissing away millions of dollars of shareholder capital on a Phase III trial that probably isn’t going to work, and has the mediocre tendency to put out retail investor hype that has little nor no scientific merit. However, the three companies that I am going be most interested to watch in 2016 are as follows:
1) Neuren. I’ve been very critical of this company’s lack of effective disclosure of clinical data, but there certainly does appear to be an interesting story building. If they really can confirm the role of GPE in serious conditions like Fragile X, then this could become a very valuable company indeed. 2016 is going to be a make or break year. Time to get transparent about the data, Richard. Show us that it works.
2) Opthea (née Circadian. ASX : OPT) is going to have a big year, and when the data comes out on its ocular program it is going to be a binary event. It will either be massive for the company, and generate some exciting momentum for partnering, or it will be the end of the road and everyone will pack up and call it a day. There isn’t going to be much in-between those two scenarios.
3) I am continuously impressed with the progress Viralytics (ASX : VLA) is making. I don’t fully understand why this company seems to continue to make good progress (even though I like the science). Although it’s a positive reflection on the management team, there there is no doubt that VLA is also a case of “right place, right time.” It will be interesting to see if the company picks up a proper partner in 2016. It’s possible.
Of course, there will be new companies in 2016. Already on my “to do” list is Micro-X (ASX : MX1), a small-footprint X-ray machine company. I seem to recall seeing a presentation about this company by Grey Innovation around 2013, or thereabouts. If my recollection is correct, the company had built a small footprint X-ray system to support a Japanese-sourced emitter technology based on carbon nanotubes, but the venture failed. It will be interesting to see how they have progressed and “re-invented” the company.
That’s it from me. This is my 187th – and final – post for the 2015 “season” of the Long Tail.
I am wishing you and your families a joyous, successful and prosperous 2016.