Not yet ready to bet on ideas still in the lab
Some markets are keen on biotechnology, but investors in SA don’t have much local choice, writes Reitumetse Pitso
Investing in companies involved in gene cloning, stem cell reproduction or even cancer vaccines is still a far-fetched idea for South African investors looking for cutting-edge opportunities on the JSE.
This might seem strange, considering how local investors slavishly follow global investment trends. Internationally these high-tech endeavours — though enduring some stomach-churning swings in investment sentiment — continue to attract frothy valuations on the Nasdaq and the London Stock Exchange.
On these large bourses a good number of companies with no profit history can command heady ratings (and substantial market capitalisations) that reflect purely blue-sky potential.
Consultancy EY’s latest Biotechnology Industry Report found that market valuations for biotechnology companies reached new heights in the US and Europe in 2014, with capital raised increasing by almost $7bn over the previous year. Revenues across the four established biotech markets — the US, Europe, Australia and Canada — grew a sprightly 24% in 2014.
Locally, it seems investors don’t have much choice in backing listed biotech contenders, unless they are brave enough to traipse down the unlisted venture capital route.
CSIR Bioscience executive director Boitumelo Semete notes that in 2013 the gross domestic expenditure on research and development in SA of 0,76% was nearly on par with its emerging market counterparts. But she notes that lack of private sector funding was much more pronounced.
“The sector needs a calibre of innovator that bring a strong entrepreneurial focus. The sector also needs an increased pool of seed funding as well as innovative funding models that cater for the ‘long-time high-risk’ nature of the investments.”
Semete believes the biotech sector also needs to find a niche where local contenders can be market leaders.
The JSE is certainly not hosting a slew of biotechnology listings — which is curious, considering the thriving biotech industries in emerging markets like Brazil and India.
There has been an argument that local investors lack the risk appetite or the patience required to hold investments in budding biotechnology companies. Though there is not much activity on the JSE, there were 55 biotechnology companies in SA in 2013. But Brazil had 263 and India 200, with nine of these publicly listed.
The JSE hosts two biotechnology opportunities. Both are small and both are tucked away in investment companies whose existing operations dwarf the biotechnology exposure. Both companies are short on institutional support, and for that reason are not well researched by market makers.
African Equity Empowerment Investment (AEE), the old Sekunjalo Investments, and niche financial services company Ecsponent (the old John Daniel Holdings) are the only two listings that appear to be exploring the biotech niche.
AEE holds a 49,99% stake in Genius Biotherapeutics, one of the oldest medical biotechnology companies in SA. Genius has been in AEE’s portfolio since 2006 and currently has a carrying value of R128m, though AEE executives would hope to unlock substantially more value if the biotech subsidiary is listed.
Genius has a rather interesting history. It was initially nurtured by beer giant SABMiller and then sold to JCI, one of the components of late mining magnate Brett Kebble’s convoluted corporate empire. JCI sold its 49,9% stake in Genius (then called Bioclones) to
The biotech sector also needs to find a niche where local contenders can be market leaders