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Are Aussie biotech stocks like Acrux and Pharmaxis primed for a rally?

Investors who follow the biotechnology sector will be all too aware of the hit a number of promising companies have taken in the past 12 months.

Acrux (ASX: ACR), the $500 million developer of drug delivery technology, is trading well below its $4.12 high reached back in April. Likewise Pharmaxis (ASX: PXS), which is developing treatments for respiratory diseases, has tumbled from a high of $1.42 to a current price of just 14.5 cents.

There might be some hope in sight however. According to a report in the Australian Financial Review the US biotech sector is in the midst of a bull run. As the Australian dollar falls against the US dollar, the high standard of science, research and development and clinical trials which back many of our domestic biotech firms mean that the US bull market could trickle down to Australia.

Brigitte Smith, a member of investment fund GBS Ventures, was quoted in the AFR’s article as saying “the biotech sector in the US is looking pricey,” which potentially means it could make sense for both US investors and US biotech firms to look to Australia for relatively cheaper alternatives.

As the chart below shows, a number of widely followed biotech companies have significantly underperformed the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) over the past 12 months. QRxPharma (ASX: QRX), which focuses on developing treatments for pain relief, and Starpharma (ASX: SPL), which has an exciting array of products in development, are another two firms that could also be of interest to overseas buyers. Both firms’ shares are trading well off their 52-week highs.

Bio

Source: Google Finance

Foolish takeaway

While there is of course company specific reasons behind the fall in prices at each of the companies listed above. Given the apparent relative cheapness of the sector compared with the ‘hot’ US biotech sector, merger and acquisition activity should not be ruled out for investors looking for a catalyst.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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