The final trading week of the year highlights the extreme volatility of biotech investments with Mesoblast soaring 50% on FDA approval for its rare disease treatment while Percheron Therapeutics plummeted 90% after a failed trial. This contrasts the binary nature of the industry where early investment offers high potential gains but also carries a higher risk of failure compared to later-stage investments.
In the final trading week of the year, we saw examples of both the windfall gains and wipe-out losses that can occur from investing in biotechnology companies developing next-generation drug treatments. For the long-suffering investors in ASX-listed Mesoblast, Christmas came early, as news of the US Food and Drug Administration’s approval for its Ryoncil therapy to be used in children afflicted with a rare but devastating disease sent shares rocketing over 50 per cent.
It was a milestone 20 years in the making for which shareholders endured a roller coaster of rejections, delays and capital raisings to realise. In the past year, Mesoblast’s shares have risen from 30¢ to $3, a significant gain for some, but for others who invested during the peaks of over $9, a significant capital burner. In the very same week, investors in Percheron Therapeutics were left with nothing but a large tax write-off for Christmas when shares fell over 90 per cent on news that its experimental muscular dystrophy drug failed to show efficacy in trials. These two contrasting outcomes illustrate the binary nature of the industry for investors. The earlier you invest, the greater the gains should the drug succeed, but higher the chance of failure.“I’ve seen many disasters over the years – sadly many, many more than the handful of success stories,” says Dean Fergie, Portfolio Manager at Cyan Investment Management.Investing later in development process is one way to for investors to minimise risk, but there exists a trade-off in returns, with the likelihood of success already factored into the share price. Others choose to invest betting that one day there will be a takeover by ‘Big Pharma’ players like Pfizer, Merck, or Johnson & Johnso
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