Interest in Australian pharma sector continues to grow

Cephalon is obviously not deterred by long distance relationships (Cephalon shopping spree continues with ChemGenex purchase, March 29, 2011). Striking its third deal in Australia in as many years, the US company’s business development team ‘down under’ is keeping busy.

In fact, the number of deals involving Australian drug developers has noticeably ticked up in the last few years, with 10 sizeable transactions worth $1.4bn taking place in 2010, EvaluatePharma data shows. And with just 16% of the country's active pipeline of 223 candidates out-licensed, licensing and M&A activity in Australia is likely to remain buoyant (see tables below).

Australian M&A Deals since 2000, split by target and acquirer
Australian Target Australian Acquirer Total M&A
Year Deal Value ($m) Deal Count Deal Value ($m) Deal Count Deal Value ($m) Deal Count
2011 (YTD) 231 1 - - 231 1
2010 1,215 6 203 4 1,418 10
2009 510 5 24 4 534 9
2008 - - - - - -
2007 247 2 - - 247 2
2006 2,108 2 12 1 2,120 3
2005 - - 884 7 884 7
2004 - - 925 1 925 1
2003 - - 80 1 80 1
2002 - - - - - -
2001 1,360 1 152 1 1,512 2
2000 - - - 1 - 1
Total 5,670 17 2,280 20 7,950 37

Australia’s public sector is dominated by CSL, the $18.5bn blood plasma and vaccines giant, which tried and failed to get even bigger a couple of years ago. Antitrust concerns scuppered its attempt to buy Talecris two years ago, and then concerns about oversupply in the blood plasma market caused growth to falter, although the company’s shares managed to edge higher over 2010, suggesting the outlook is improving now (Shares in plasma companies bleeding value over slowdown fears, April 26, 2010).

The S&P/ASX 300 pharma and biotech index only contains five stocks: CSL, Mesoblast, Acrux, Biota and Pharmaxis. As CSL dwarfs all others, the index’s performance essentially reflects this company’s performance.

However, excluding CSL the country now has 13 drug developers worth at least $100m, the table below shows.

Mesoblast, in which Cephalon bought a 20% stake last year for $280m, is now a sizeable player by international standards, with a market value topping $2bn following a stellar share price performance last year.

Other Australian success stories include Pharmaxis, which hopes to win European and possibly US approval for its cystic fibrosis therapy, Bronchitol, later this year. Meanwhile Acrux and partner Eli Lilly won US approval for testosterone replacement therapy Axiron last November, triggering a substantial $87m milestone payment.

The absence of sizeable venture capital industry providing larger and later finance rounds means Australia has a lot of small, publicly-traded companies. These firms have to seek investment from public investors – a buoyant and enthusiastic retail or non-professional investor sector also helps. Approximately a quarter of the country’s biotech sector is listed, according to some estimates.

According to EvaluatePharma, there are 29 Australian drug developers in the sub $100m bracket – 21 of these are valued at less than $20m. From companies like cardiovascular diagnostics group Agenix to DNA-directed RNAi specialist Benitec to neurology firm Neurodiscovery, the country’s nano-cap sector is broad.

Top 20 Australian Public Companies by Market Capitalisation
 Market Capitalisation ($m) Cash raised from equity (00 - 10) ($m) Share price performance (A$)
2009 2010 Change %
1 CSL 18,499 n/a 32.49 36.29 +12%
2 Mesoblast 2,204 431 1.36 4.67 +243%
3 Pharmaxis 607 196 2.72 2.98 +10%
4 Acrux 606 52 2.18 3.54 +62%
5 Sigma Pharmaceuticals 539 119 0.99 0.40 -60%
6 SIRTeX Medical 305 1 7.44 6.05 -19%
7 Starpharma 276 44 0.69 0.84 +21%
8 Prima BioMed 193 30 0.15 0.17 +13%
9 QRxPharma 184 - 0.78 1.48 +89%
10 Biota 179 41 2.41 0.99 -59%
11 Alchemia 131 64 0.72 0.63 -13%
12 ChemGenex Pharmaceuticals 124 83 0.99 0.46 -54%
13 Halcygen Pharmaceuticals 104 - 0.66 0.69 +5%
14 CBio 101 39 0.26 0.22 -17%
15 Phosphagenics 86 38 0.07 0.12 +71%
16 pSivida 81 79 4.26 4.72 +11%
17 Prana Biotechnology 65 55 0.15 0.13 -17%
18 Clinuvel Pharmaceuticals 56 68 2.70 2.07 -23%
19 Avexa 51 133 0.16 0.04 -76%
20 Probiotec 33 - 2.48 0.60 -76%

Still, unsurprisingly the deals struck in the last couple of years have been between more advanced companies and products. Of the ten struck last year, six of which involved an Australian company as target, the most significant was Aspen Pharmacare’s acquisition of Sigma Pharmaceutical’s generics unit, followed by Cephalon’s deal with Mesoblast and Perrigo's swoop on OTC specialist Orion Laboratories for $48m.

Australian companies were also the buyers; Mesoblast bought sister company Angioblast Systems prior to the Cephalon deal, while Pharmaxis bought Canadian respiratory specialist Topigen Pharmaceuticals for $20m.

Recent share price gains for the country's bigger-listed companies will fuel overseas ambitions - only this week Biota announced a strategic review, signalling a desire to capitalise on its success with flu anti-viral Relenza which has left the company with $76m in the bank and a second generation antiviral, laninamivir, only licensed so far to Daiichi Sankyo in Japan.

Meanwhile, the analysis of Australia’s drug pipeline, below, reveals a number of candidates remain available for willing partners in several territories. For example, QRxPharma has retained worldwide rights to a phase III candidate for post-operative pain, flupirtine, while Viralytics has a virus-based targeted therapy in phase II trials for melanoma, Cavatak. 

As such, Cephalon is unlikely to be the only international player looking 'down under' for deals.

Active R&D Pipeline of Australian Companies
Phase Product Count Licensed % licensed
Filed 3 1 33%
Phase III 10 5 50%
Phase II 44 10 23%
Phase I 33 5 15%
Pre-clinical 84 10 12%
Research project 49 5 10%
Total 223 36 16%

All data sourced to EvaluatePharma.

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