Biotechnology company Narhex Life Sciences collapses, but sector looking stronger

Struggling Melbourne anti-HIV drug developer Narhex Life Sciences has been placed in administration after a long battle for survival, three months after the death of its executive chairman.

Narhex, based in Melbourne, started researching anti-HIV drugs in 1990 and listed on the ASX in 2005, raising about $8 million.

The company is currently developing its HIV drug in a joint venture with a Chinese company, but administrator David Ross says cashflow problems eventually forced the company to call in the administrators.

The company was suspended from trading on the ASX in March 2008 and did not resume trading before its collapse on February 10.

David Ross and Richard Albarran of Hall Chadwick have placed the company up for sale, offering its patents and licences and the listed ASX entity.

Ross says he is in discussions with Narhex’s Chinese joint venture partner about a possible recapitalisation deal, but says the joint venture arrangement could be spun off into a special purpose vehicle if there is interest in acquiring the ASX shell.

David Blake, editor of highly respected biotechnology industry publication BioShares, says the collapse is not a surprise.

“It’s been dormant on the ASX for a very long time. It is amazing how little income and resources a company can maintain a listing.”

Blake says the death of Cohen in November last year may have brought forward the decision to call in administrations, as he was “the guys that’s been holding it all together in the last year”.

Blake expects to see about 10 biotech company collapses in 2010 – ugly, but not as bad a 2009, when 14 companies went to the wall after nine collapses in 2008.

However, Blake says 2009 was actually a relatively good year for the sector, with Bioshares portfolio of biotech companies posting an overall return of 62% since March 2009.

“We look at a good and bad news ratio and the good news ratio really was pretty good. We’ve seen a contraction in the overall numbers, but there is a strengthening of the more mature companies. “

Some of the share price gains were spectacular last year: from 12-month low to high, shares in Biota soared 732%, ChemGenex was up 289%, Acrux was up 504%.

Analysts are also positive about 2010, according to a straw poll conducted by BioShares in its February edition, as the sector’s biggest companies mature into real businesses, rather than R&D houses.

“We believe the key thematic for the sector in 2010 will be the delivery of commercial milestones,” Taylor Collison analyst Tom Duthy told BioShares.

“A number of companies have progressively transitioned from research/development into fully fledged commercial businesses. As such, there will be growing investor interest in revenue generation, and potentially, profits.”

Blake and a number of analysts point to Acrux as a company that investors will be watching closely as a bellwether this year.

The company’s share price has seen impressive growth in the last 12 months and the market is waiting to hear news on a commercial deal regarding Acrux’s drug Axiron, a topical testosterone treatment for men with low testosterone levels.

The company filed a new drug application with the FDA in January and the market is hoping the company can make inroads into the US testosterone gel market, currently worth about $US700 million a year.