So begins the year of the stock picker, as investors fret over a local market that they expect will struggle to provide decent returns.
Notoriously volatile and tricky to pick, biotechnology stocks gave nimble investors plenty of opportunity to outperform blue-chip stalwarts such as miners and banks in 2015 and are set to provide some wild rides in 2016 too.
An index of 40 biotechnology companies – excluding heavyweights Cochlear, CSL and Resmed, and ranging from drug delivery to e-health – not only outperformed itself, up 22 per cent on the previous year, but beat the S&P/ASX 200, which finished the year down 2.7 per cent. The index was prepared by industry publication Biotech Daily.
Already biotech companies are off and racing. Shares in Perth-based Orthocell (ASX:OCC) soared earlier in the week after the tissue regeneration company was granted a patent for its "cell factory" technology in the United States. The share price leapt 19 per cent higher on the day of the news to 47¢.
Notwithstanding the great difficulty that comes from predicting which risky stock will offer up the next superstar drug or medical device – clinical trial results deliver as many failures as they do successes, and regulators can provide plenty of roadblocks – here are some of the biotech stocks analysts are watching:
ImpediMed (ASX: IPD) told the market in December it would expand its efforts to sell its L-Dex device in the United States in 2016. L-Dex aids the early detection of lymphoedema – a complication of cancer. Investors got great news in November 2014 when the company found out the approved rate it would be paid for each test – known as reimbursement – was much higher than it expected. Now following a pilot program throughout 2015, investors are hoping the good news will continue.
"Rick Carreon joined as CEO three years ago and has made a considerable difference to ImpediMed's fortunes," said Matthijs Smith, analyst at Canaccord. "He's a good operator and they should have news coming out soon."
The share price has surged from about 20¢ at Carreon's arrival, to $1.16.
Opthea (ASX: OPT), previously Circadian Technologies, is in the midst of a company turnaround having changed its name at the end of 2015. The company is developing a drug it hopes will aid wet (age) macular degeneration, a disease that affects the back of the eye. The share price trundled along steadily at 20¢ for most of 2015 before leaping to 51¢ in December at the re-brand. Opthea is due to release clinical trial data in the first half of this year and analysts believe this will either push them one way or the other.
Nanosonics (ASX: NAN) is a Sydney-based company run by the former head of marketing of medical device giant Cochlear, Michael Kavanagh. It sells ultrasound equipment in the United States and parts of Europe. Investors have been waiting on Scottish and English regulators to release new guidelines surrounding the sterilisation of ultrasound probes, a decision that would open up another market for Nanosonics and allow the company considerable expansion opportunities. This announcement is expected in the first half of 2016.
Starpharma (ASX:SPL) is set to announce results for a number of clinical trials in the next few months. The company's technology is built around dendrimers – a type of synthetic nanoscale polymer that has a range of pharmaceutical applications. It raised $32 million in December to support its DEP docetaxel phase 2 clinical program. More recently, Starpharma signed a memorandum of understanding with a Chinese company to make and sell its VivaGel-coated condom in China.
Analysts will be closely watching one of the market's largest biotechnology companies yet to bring in significant revenue, Mesoblast (ASX: MSB), which is set to announce another clinical trial date for one of its programs. "The last trial results that were reported on, for many people, were pretty ambiguous," Canaccord's Mr Smith said. "They certainly weren't compelling." Mesoblast is in a tight spot after the stem cell therapy group lost more than a third of its value after listing on the Nasdaq in November last year. The company came on the market at $US8 before losing almost 40 per cent on day one and is still trading well below the US listing price.
2015 was a year of flurried deals, the sector raised more than $1.1 billion and saw several privately owned firms cash in successful deals. Head-lice group Hatchtech sold overseas for $277 million, drug developer Spinifex was snapped up for $US200 million ($281 million) and an Irish firm took over Fibrotech Therapeutics for $81 million.
But this sector is very risky. QRxPharma moved to liquidate its assets in 2015, and shares in Osprey Medical and GI Dynamics both plunged after disappointing announcements.