What is an ASX biotech stock?
Biotechnology is technology based on biology. Companies in the biotech sector use cellular and biomolecular processes to develop new technologies and products.
ASX biotech shares typically manufacture products using living organisms such as bacteria and enzymes to produce medicines, improve agricultural yields, and streamline manufacturing processes.
They are a subset of ASX healthcare stocks, alongside pharmaceutical companies. Both subsets produce medicines, the former using biology and the latter through chemicals.
Humankind has used the biological processes of microorganisms for thousands of years to make familiar everyday items such as bread, beer, cheese, and dairy products. Modern biotechnology emerged in the 1960s and 1970s as scientists began experimenting with molecular and cellular technologies.
Many breakthroughs in the field of medicine have occurred through research in the biotech sector. Biotechnology is behind the creation of essential vaccines, stem cell research, gene editing, 3D-printed organs, and targeted cancer therapies.
Why invest in biotechnology shares?
Investors in ASX biotech stocks can make significant returns if products make it to market. It can be very lucrative to produce treatments that cure diseases.
But products must be proven effective and safe and meet regulatory requirements such as those imposed by the Therapeutic Goods Administration to make it to market.
The risk for investors is that products under development by biotech companies never make it to market. So although the biotech industry offers the potential for significant gains, it also has the potential to produce substantial losses.
Biotech companies with the potential to revolutionise an industry may impress investors, but it can be challenging to assess the likelihood that products will be successful.
The future performance of biotech companies on the Australian Securities Exchange ultimately depends on their products improving the life of patients.
Top biotech shares on the ASX
(based on market capitalisation from high to low)
|Top ASX biotech shares||Company description|
|CSL Limited |
|One of the largest and fastest-growing protein-based |
|Telix Pharmaceuticals Limited |
|A biopharmaceutical company that develops diagnostic |
and therapeutic products using targeted radiation
|Clinuvel Pharmaceuticals Limited |
|Pharmaceutical group developing treatments for patients |
with genetic, metabolic, systemic, and life-threatening
CSL focuses on rare and serious diseases and influenza vaccines. Formed more than 100 years ago, CSL now offers a broad range of plasma-derived and recombinant therapies. Plasma-derived therapies treat many conditions, ranging from bleeding disorders to immunodeficiencies. Recombinant therapies utilise DNA technology to treat diseases using gene therapy.
CSL is the fifth-largest global biotech company, with eight manufacturing sites across six countries. In FY22, CSL delivered net profit after tax (NPAT) of $2.255 billion, at the top end of guidance. This was a resilient performance against ongoing challenges posed by the pandemic. CSL's earnings per share (EPS) were $4.81, down 8% for the year.
Despite an uncertain environment, CSL has been diligent in cost management and significantly boosted investment in research and development. The company anticipates NPAT for FY23 to return to growth and be approximately $2.4 to $2.5 billion at constant currency.
Telix is a commercial-stage biopharmaceutical company that develops diagnostic and therapeutic products using targeted radiation.
Targeted radiation aims to seek out cancerous or disease cells with precision, regardless of their location in the body. Imaging can precisely localise disease and deliver therapeutic isotopes to affected cells. This treats patients in a way that spares healthy tissue and optimises outcomes.
The company has a product pipeline to treat prostate, kidney, brain, and hematologic cancers and rare diseases, with more than 20 clinical trials underway worldwide. Its prostate cancer imaging agent has been approved by the Therapeutic Goods Administration in Australia, the United States Food and Drug Administration, and Health Canada.
Telix Pharmaceuticals' molecularly targeted radiation has the potential to deliver on the promise of nuclear medicine. The company is developing and commercialising diagnostic and therapeutic radiopharmaceuticals to address unmet medical needs.
In 2022, Telix achieved the commercial launch of its Illuccix prostate cancer imaging product in the United States. The company reported U$13.6 million in sales revenue following FDA approval.
Clinuvel is a global specialty pharmaceutical group focused on developing and commercialising treatments for patients with genetic, metabolic, systemic, and life-threatening acute disorders.
The company achieved a significant milestone in October 2019 when the FDA approved its Scennesse treatment to prevent phototoxicity in adult patients with erythropoietic protoporphyria (EPP).
In FY21, the company expanded its product portfolio, developing an active clinical program to treat multiple indications with unmet or underserved needs. This strategy was continued in FY22, balancing the expansion of the clinical program against challenging operating activities.
Clinuvel delivered its sixth consecutive annual profit in FY22, with the fifth annual dividend declared. Cash balances rose to $121 million, enabling the company to self-finance key activities. Total revenues, interest and other income rose 38% for the year. Expenses grew by 44% for the year to support the company's strategic initiatives.
What to look for when buying ASX biotech shares
For investors in the biotech sector, it can be difficult to estimate the probability that a company's pipeline products will ultimately generate revenue.
These products must go through costly trials to achieve regulatory approval meaning it can take years before any payoff. Early-stage companies can have swings in revenue, from earning none at all to having a decent stream of revenue once a drug is approved.
Breakthroughs in the biotech space include genomic sequencing, 3D printed organs, stem cell research, nerve regeneration and gene editing. When discoveries are successfully commercialised, the companies behind them can see huge growth in revenue and profits.
The COVID-19 pandemic provided a boon for biotech companies manufacturing vaccines, such as Pfizer Inc (NYSE: PFE). Vaccines can be a key growth driver, as can 'blockbuster' drugs that typically treat common medical conditions and so achieve wide uptake – and more than $1 billion in sales.
Pros of investing in biotech shares
Strong growth prospects. The global biotechnology market was estimated at $793 billion in 2021, according to Precedence Research, and is set to grow at a compound annual growth rate of 8.7% from 2022 to 2030.1
Favourable regulatory environment. The rise of the biotech sector in China and developing nations is being driven by favourable government initiatives. These aim to streamline regulatory pathways, standardise clinical studies, and expedite product approval processes.
Due diligence required. A high level of scrutiny is important when investing in biotech shares. Products must fill a community need. If a company can produce a drug that can help mitigate disease or pain, it is more likely to succeed, while tech innovations can keep healthcare costs down.
And the cons…
Complexity and understanding. It can be challenging for investors without a medical or scientific background to research biotechnology company products. This means it can be difficult for investors to assess the effectiveness and potential of these products and the likelihood they will make it to market.
Reliance on guidance. Retail investors may rely on the guidance of investment analysts at financial institutions for insight into potentially promising biotech shares. A 'buy' rating from an investment house can send the stock price higher, but there is no guarantee it will maintain these gains.
Impacts of failure. Getting a drug to market is complex, especially where rare disease is concerned. There are many steps involved. If drug candidates fail to get regulatory approval or a biotech firm reports poor results in a clinical trial, the share price can quickly tank.
Are ASX biotech stocks a good investment?
An investment in ASX biotechnology shares can be very rewarding for investors who do their due diligence and understand the technology they are investing in. But investing in biotech stocks can be inherently risky.
Whether biotech shares are for you depends on your risk tolerance and financial situation. If you do decide to pursue investing in this sector, you must take the time to understand the nature of biotech products and their chances of success. This will enable you to make an informed investment decision and allocate risk appropriately.