The Medibank float has certainly put the medical and healthcare industry front and centre, but while the IPO ride has been interesting to watch, the real action might be in the biotechnology and pharmaceutical sectors.
In an update to investors yesterday, biotechnology company CSL detailed hopes for approval for a new drug for haemophilia next year. That approval alone could add millions of dollars to the company’s bottom line. Biotechnology companies need to focus on research and development (R&D) if they want to stay ahead of the pack, and CSL will spend $US500 million on R&D this year.
At the Switzer Super Report we’ve had our eye on CSL for a while – it’s in our model growth portfolio. As a US dollar earner we like its exposure to a rising US currency. And fund manger Don Williams, at Platypus Asset Management, wrote about it in August.
He had a price target of $82 (it’s trading well over that now) and said they would consider selling it if it got over a PE of 26 times (it’s sitting at just over 23 on present foreign exchange values).
CSL
Source: Yahoo!7 Finance, 4 December 2014
“CSL appears to be more innovative; they have the largest portfolio of high margin specialty products and are the lowest cost producer of plasma products. They invest heavily in R&D, not only in new products where the returns are long dated, but also in improving business efficiency where the returns are more immediate.”
If you had bought CSL back in August, you would be up by 34% today.
Another biotechnology/therapeutic company that we like at the Switzer Super Report, and that has paid off for anyone that invested in it when we first mentioned it in our report, is Sirtex (SRX).
This is another favourite of Platypus Asset Management. Analyst Jelena Stevanovic wrote about it last July (2013) and Roger Montgomery has also been a keen watcher of the stock with an updated view in March of this year.
Sirtex manufactures, markets and sells SIR-Spheres, which is a medical device used in interventional oncology. It delivers a highly-focused radioactive dose to liver cancers.
The real difference that such an innovation can make was recently brought home to me when a nurse friend of mine told me she was implanting the SIR-Spheres into palliative patients and the difference it made to their lives.
While currently used in palliative care, it is hoped that one day the device may be able to shrink cancer tumours to a size at which they can be removed. A study into the effectiveness of the treatment on a range of cancers is expected to be released early next year.
But if you’d invested in Sirtex 12 months ago your one-year return would be almost 140%.
Sirtex (SRX)
Source: Yahoo!7 Finance, 4 December 2014
These are just two companies that are going to be riding the major theme of healthcare and pharmaceuticals over the coming years. Demographics are a key driver of this industry, as more Australians reach retirement they are demanding more from the medical industry.
But it’s important to remember that Australia is a world leader in many of these industries. Cochlear might have put us on the map, but there are plenty of other companies growing up in its wake.
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