08/11/2013 - 14:40

Bitter pill for investors’ pain

08/11/2013 - 14:40


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Investing in the share market is an inexact science, and biotech stocks can add a further layer of complexity to the formula.

Bitter pill for investors’ pain
COMPLEX: Investing in the share market is an inexact science, and biotech stocks can add a further layer of complexity to the formula.

Investors scorched by the share price collapse of local pharmaceutical development company pSivida can take some heart from a recent report suggesting they are not alone when it comes to understanding precisely how some drug and biotechnology products actually work.

According to a detailed analysis of scientific research by The Economist magazine, there are almost as many failures as successes in the world of innovative technology and science – but separating the winners from the losers is not as easy as it should be.

What the investigative team at the London-based publication did was look closely at how scientists conduct and report experiments. And while an investor (or any other layman) on the outside of the science world is generally prepared to accept the word of scientists that a ‘breakthrough’ drug really is a breakthrough drug, that doesn’t seem to always be the case.

Precisely what happened with pSivida’s major new drug, Iluvien, is yet to be made clear but it seems that while European and British medical authorities are happy with the way it treats “back of the eye disease”, the US Food and Drug Administration is not.

On October 21, pSivida reported to the Australian Securities Exchange that the FDA had concerns about “the benefit and safety profiles” of Iluvien and asked pSivida to conduct new clinical trials and work with US medical authorities in addressing identified “clinical and statistical deficiencies”.

That report knocked the stuffing out of pSivida’s share price, which had been flying on the strength of winning European and UK approval for Iluvien.

Three weeks before the FDA bombshell, pSivida had celebrated winning UK approval for the drug with the result that its share price rose by 29 per cent, from around $4.35 to $5.62.

When the FDA notice of concern was reported, pSivida’s share price crashed back to $2.52, a 55 per cent fall from that post-UK announcement high.

In his October 21 letter to the ASX, pSivida chief executive Paul Ashton said he was disappointed with the FDA decision but pleased that pSivida’s US licensee, Alimera Sciences, would continue to work with the FDA to determine a path forward for the drug in the US. He also noted that Iluvien was well positioned to grow in Europe “irrespective of the US outcome”.

There seems little doubt that pSivida can proceed with the marketing of Iluvien outside the US, but there is also little doubt that medical authorities around the world will be curious about what the FDA saw that they did not – and that’s where The Economist analysis becomes interesting.

Under the heading ‘How science goes wrong’, the magazine looked at the problems of:

• how the widely accepted “peer review” process of science doesn’t seem to work very well;

• how some breakthroughs in science and technology prove hard for independent researchers to replicate; and

• how failures in science are rarely reported, which means future generations of scientists are destined to repeat failed experiments.

What really catches the eye of a reader is the claim that, last year, researchers at the US biotechnology giant Amgen found they could only replicate six of 53 so-called landmark studies into cancer research, and that researchers at the German giant, Bayer, managed to only replicate a quarter of 67 similarly important papers.

It is impossible to directly connect pSivida’s problems in the US and the research questions raised in The Economist by the Amgen and Bayer examples, but it does seem to be significant that the FDA’s queries about Iluvien relate to alleged “clinical and statistical deficiencies”, which sounds like the sort of issue that caused Amgen and Bayer to fail in their attempts to repeat the work of other researchers.

For investors, the pSivida share price collapse is a warning about the risks associated with most forms of research into something new – and that includes mineral exploration, which often involves a heavy dose of science.

What’s needed from all stock exchange-listed companies that rely on science to support their share price is a clear statement of risk, including the risks of not clearing all the hurdles set by government authorities, and how failure to clear those hurdles can limit the conversion of a bright idea into a saleable product.


It's easy for someone in Western Australia to see the problems of Australia’s car manufacturing industry as an issue that has nothing to do with them, as the handful of assembly plants in Perth closed decades ago and, in the case of the old Ford factory in North Fremantle, became a brewery.

But behind the threat by US automotive giant General Motors, and Japan’s Mitsubishi, to end all car design and manufacturing in Melbourne and Adelaide is a far deeper and more important question: what is it Australia does that can survive in a globalised business world?

The quick answer is mining and energy production. We’re very good at that, but a future based on digging holes in the ground means we really do risk become a giant quarry.

What’s needed is the encouragement of other industries that can compete against international competition. Rather than government continuing to waste taxpayer funds propping up car makers that cannot match the costs of Korean, Chinese and Japanese manufacturers, it’s time to redirect funds into viable industries that can be world leaders for Australia in the same way mining is.

Education, tourism, medical, financial services, and legal services are naturals for Australia to become a regional leader.

Only industries that can deliver world’s best service should be encouraged, and car making is not one of those.

Coal conundrum

Coal is in the news in WA, but don’t expect much good to come from events in the home of the state’s coal industry, Collie, or at the latest coal discovery in the Pilbara.

The Collie problem is one of high operating costs, low coal prices, and the need for the Indian owners of Griffin Coal and the Chinese owners of Western Collieries to suffer a substantial asset value write-down – which from an eastern world position means losing face.

In the Pilbara, the coal discovery by Northern Star is a remarkable geological success but don’t expect it to be developed for a very long time, if ever, and almost certainly not by the company behind the discovery. A quick sale to a coal specialist seems far more likely so it can handle the financial challenge of ‘monetising’ a discovery in grossly oversupplied coal market.


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