11/10/2005 - 22:00

pSivida, CCC over there, somewhere

11/10/2005 - 22:00

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Big fish in Perth’s small corporate pond pay a high price when they move to deeper waters. If that’s a difficult concept to grasp, have a look at what’s happened to the share prices of two local technology firms that have expanded internationally – nothing, or worse.

Last week pSivida, which has been a bit of a star over the past two years, said it was merging with a US business, and would in future be based in Boston. The company thought it was good news, the market trashed the stock, knocking it from 94c to 77c, a rather painful 18 per cent drop in just three days.

Something similar, though not quite as bad, has happened to another Perth technology darling – Clinical Cell Culture, the spray-on skin business which last year moved from its Perth head office to Britain. Since making the shift, nothing has been able to put life into CCC, which limps along at 35 cents, down 26 per cent on the 47.5c price of 12 months ago.

The two companies have much in common, and it is possible that they’ve been caught in the general pall of gloom covering the worldwide biotechnology and pharmaceutical industry caused by a series of high-profile catastrophes.

The big US ‘pharma’ Merck, and its troublesome arthritis drug, Vioxx, is an example of how a medical-based business can go horribly wrong. The jury (literally) is out on Vioxx, but it has cost Merck dearly in reputation terms and could cost in millions, if not billions of dollars in settling legal claims.

pSivida and CCC are different in some ways to Merck, and similar in others. The most obvious difference is size, while the most obvious similarity is that they are both developing businesses that involve putting things into the human body, or spraying it on.

That means there is a need for lots of government rubber stamps. And the fact is Perth is a very small market and the best opportunities for growth lie in big markets like Europe or the US.

And that’s where the problems start. In Perth, CCC and pSivida are big fish, attracting lots of investor interest, and media headlines. Moving overseas means that this advantage is forfeited because small pharmaceutical/biotech companies litter the ground in Boston, where pSivida is heading, and Cambridge, the new home for CCC.

pSivida’s sharp share price fall is one illustration of what Briefcase calls the ‘over the horizon’ effect, which has been noticed in a group of small mining companies that chose to have an office in Perth, a stock exchange listing elsewhere, and exploration or mining assets in a third location. This introduces an uncertainty factor once called falling between two stools, but which is now really a case of falling between three.

The best recent example of becoming an unknown in your own home town is Anvil Mining, which has run foul of certain non-government organisations over alleged atrocities in the Congo. Time will probably prove Anvil innocent of all accusations but it faces a problem of who’s listening, because some shareholders live here, but the mine is in Africa, and the main stock exchange listing is in Canada – a case of being here, there and everywhere.

Meanwhile, back in the pharma/biotech world, there is the question of what to do with pSivida and CCC. Briefcase, as ever, offers no investment advice, but reckons that both will progressively fade from view, locally anyway.

There are a number of reasons for this somewhat jaundiced view, apart from the ‘over there, somewhere’ aspect to both stocks. There will also be a problem in generating news flow, essential in creating interest and moving a stock along – the way small fish in big ponds always behave.

Take CCC as a particular case study. A few years back it flew high on publicity associated with the first Bali bombing and the use of spray-on skin to help treat victims. This time around, the Bali factor (partly because of fewer burns) did not work. In the days after the second bombing, CCC’s share price slipped a little.

Quite apart from news flow and the ‘over there’ factors, there is another big issue at work in the mind of the market; the small matter of sales and profits. Like all emerging pharma/biotech stocks pSivida and CCC are yet to do much on either count. Briefcase would argue that since they are losing the ‘big fish/small pond’ advantage there is really only one way they can make a return, and that’s by producing big profits and fat dividends – and both of those take years (decades even) to generate in the pharma/biotech world.

•••

There is also a flipside to this over-the-horizon factor, and that is the problem of investors (and the media) missing ‘the big one’, the discovery that changes everything, and on which great fortunes are made.

The best example of that is Cortecs, a Perth-based biotech/pharma, which migrated to London, flew high (for a while), and attracted lots of publicity for the wrong reasons. But it should never be forgotten as the company to first spot the business potential of helicobacter pylori – the bug that lies behind the Nobel prize won last week by Perth doctors, Barry Marshall and Robin Warren.

It was Cortecs, and its predecessor companies, that spotted the business opportunity from developing simple diagnostic tests for H.pylori, bacteria, which causes ulcers. In theory, such a test based on a medical breakthrough, should have been a huge money-spinner, and perhaps one-day it will be.

But it is history now that Cortecs ran foul of the over-the-horizon factor; it became an easy target for an aggressive media campaign, partly because of the lavish lifestyle of then chief executive Glen Travers, and partly because of the ignorance factor – the ‘what’s he doing over there, where we can’t see him’ view of the world.

Well, Mr Travers did live well. But he was also chasing a winner, which has now delivered well-deserved fame (and a little bit of fortune) to Drs Warren and Marshall.

Perhaps, just perhaps, if he had stayed in Perth, and remained a big fish in a small pond then Cortecs might have survived and prospered – albeit at a slower rate because of the ‘remote Perth’ factor.

•••

“Fame is but the breath of the people, and that is often unwholesome.” Thomas Fuller in 1732 (and probably an early comment on H.pylori being on the breath of the people).

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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