Three months ago I started NDF Research as an equities research business focused on Life Sciences companies that were publicly traded on the Australian Securities Exchange (ASX). One of the reasons that I did this was that I think there's going to be a serious boom in Life Sciences stocks in this part of the world and I wanted my new firm to be part of it. If you've never been to Australia, hopefully after reading this blog piece you'll be interested in travelling Down Under to do your homework on this coming boom.
To understand why Australia is rapidly becoming a global Power in Life Sciences, I want to draw an analogy with men's basketball. Time was when the US reigned supreme as the global power in basketball and everyone else trailed way behind. Then things started to change. America had easily won gold at every Olympics since 1936, then got very narrowly beaten by the Soviet Union at the basketball final in the Munich Olympics in 1972 (indeed, I think the Commies stole that match - click here). They came back in 1976 by beating Yugoslavia, and they triumphed in 1984 against Spain, but in 1988 the unthinkable happened - the US was relegated to bronze while the USSR took gold and Yugoslavia silver. It happened again in 2004 when America was at bronze again while Argentina and Italy fought it out for gold and silver. It wasn't that America had weakened. It was that the rest of the world was learning how to play the game properly and America had to innovate and go to the next level in order to maintain its lead. To its credit, the last three US Olympic basketball teams have done that.
Now don't get me wrong. American is still the No. 1 Superpower at basketball and at biotechnology. My point is that a lot of other countries are learning to do biotech as adventurously and as professionally as America has traditionally done, not unlike how a lot of countries have been improving with their basketball talent. And Australia is one of the rapidly improving countries.
On the ASX there are around 100 listed Life Science companies. ASX is home to Cochlear, the company that gave the world the cochlear implant, and ResMed, which was the pioneer of the CPAP machine. It's also home to CSL, one of the world's largest pharma companies and a global leader in plasma therapeutics. Sirtex, the global pioneer of brachytherapy, is an Aussie company. So is Ellex, one of the world's leading medical laser companies. We're pretty good at this Life Sciences game..
Emerging from underneath these established companies are around 95 drug and medical device developers that you have probably never heard of, but, were they traded on Nasdaq and headquartered in San Diego, Cambridge Ma., or the Bay Area, they would be worth orders of magnitude more than they are currently valued at on ASX. Why so cheap? Mainly because Australian investors are only just realizing the treasure trove they are sitting on, having spent most of the period from 2003 to the present time focused on mining and oil stocks. I routinely describe our Life Science companies, without mentioning their names, to sophisticated US investors and ask the question 'how much would you be prepared to pay for this?' and when I tell them the price they are astounded at the undervaluation.
The reason I think the valuation gap is about to close is that we now know how to play the game much better. Our clinical trials are structured much better. Our partnering discussions with Big Pharma are more two-way than they use to be. And our early stage R&D has become much more commercial in orientation. We're catching up fast, and I think eventually our stock prices will catch up as well.
Want to start looking at this treasure trove? Spend some time at ndfresearch.com, where there's plenty of useful information, including a list of companies to look at, and a league table that suggests that, after the US and the UK, we are the No 3. power in biotech globally. Not unlike our basketball team. At the Rio Olympics we finished fourth, and we only missed the bronze to Spain by a single point.