2 days ago
Precision Points: When it comes to biotechs' messaging, a lingering KISS goes a long way
In Precision Points, Precision Funds Management executive directors Dermot Woods and Andy Clayton draw on insights from two decades on the front lines of equity markets to share their expertise with Stockhead readers.
Today, Dermot Woods outlines the Perth based fund's approach to investing in the biotech space, which has parallels with its more familiar ground of the resources sector.
As with its more familiar bailiwick of resources, the Precision Funds Management deploys the KISS acronym when investing in the biotech sector.
Keep It Simple Stupid.
'The information has to be presented simply enough so that we semi understand it,' Precision executive director Dermot Woods says.
'It helps if can pronounce the name of a disease, or it has an action we can remember.'
Woods deploys plenty of rock-kicking analogies to describe the entity's nascent interest in the biotech sector.
For a start, the risk and reward parameters are strikingly similar.
As with each new 'Olympic Dam-style' copper play, the chances are that the latest in-vogue drug program won't be the next Neuren Pharmaceuticals (ASX:NEU).
(Neuren and its partner Acadia famously commercialised the Rett syndrome drug Daybue and the achievement is a rare exemplar of ultimate achievement).
But who says investors can't have fun along the way?
Have a crack
Along the convoluted drug development path, it's a case of getting that risk-reward equation down pat.
'Investing in West African gold stocks is risky, but everyone knows they are risky, so the risk is priced in,' Woods says.
In contrast, the biotech sector is still emerging from its post-pandemic nuclear winter that descended in late 2022.
Despite notable capital raisings such as Clarity Pharmaceuticals' (ASX:CU6) $200 million whip-'round, local biotechs still are starved of capital.
The upside? There's plenty of 'mispriced risk' and now is the time to 'have a crack'.
More than a punt
As with an iron ore explorer that chanced on lithium, Precision tentatively embraced biotech for the wrong reason.
'Like most fund managers, we had a 'zero biotech' rule for about 20 years,' he says.
'We then thought the aggregation of big data would mean that drug discoveries became quicker.
'It hasn't happened yet – but it will.'
(Big data aggregation refers to collecting, combining, and summarising large labs of data into more manageable and useful formats).
In the mining sector, Precision likes to see a certified resource, 'rather than punting on a piece of ground'.
Precision's life sciences ethos is similar: avoid the whimsical preclinical and phase I stuff in favour of the mid-to-late pointy end.
If that means writing a bigger cheque, then so be it.
To date, Precision has weighed in on four ASX drug developers.
The biggest, Dimerix (ASX:DXB), accounts for 4% of the fund's circa $100 million of assets.
Stroke drug developer Argenica Therapeutics (ASX:AGN) comprises around 1%.
Dimerix goes from 'really cheap to cheap'
Precision's centrepiece biotech exposure is Dimerix, which is in phase III with its drug candidate for the kidney disease focal segmental glomerulosclerosis.
The fund initially took part in the company's $20 million placement in March 2024 at 30 cents a share, after its successful interim readout.
After that, Dimerix inked four global partnership deals that raked in $65 million, with up to $1.4 billion in potential milestones.
Woods says Dimerix's funding position substantially derisks the company.
Dimerix won't need money until the 'moment of truth': the outcome of the phase III study.
Woods admits the fund could have got in cheaper, with Dimerix stock trading at a paltry six cents two years ago.
He says it's a case of a stock going from 'really cheap' to cheap – with significantly less risk.
Argenica was a stroke of luck
The Perth-based Argenica is testing its stroke drug candidate in a local phase II trial.
Having enrolled 92 patients across eight hospitals, investors should expect a data readout in early September.
Ultimately, Argenica eyes a phase III trial, but the US Food & Drug Administration has asked for more safety data before it can approve the study.
Given the company needs to wait for its phase II trial anyway, time is on its side.
Woods says the fund weighed into Argenica three years ago, at about 40% below current levels.
He says the fund was drawn to Argenica partly because of CEO Dr Liz Dallimore's 'clear vision' on the company's strategy.
'If this trial , we can buy a decent return for a very decent price," Woods says.
Not PYC-ing out on a punt
Despite being mining focused, Perth-based drug maker PYC Therapeutics (ASX:PYC) once was Precision's biggest holding, before the fund flipped the stock at a profit.
By combining existing ribonucleic acid (RNA) drug design with its proprietary delivery platform, PYC is developing precision therapies for patients with genetic diseases that have no treatment options.
PYC's lead program covers the rare eye disease retinitis pigmentosa. It is also targeting autosomal dominant optic atrophy, Phelan-McDermid syndrome and autosomal dominant polycystic kidney disease.
The company's once-muddled story is gaining traction, with the stock more than doubling over the last years and pushing its market valuation over $700 million.
'They have done a really good job,' Woods says. 'But for us it's probably a bit too early stage.'
Precision also took a profitable punt on a fourth non-WA drug developer, which Woods declines to name.
KISS and take up
Woods' overriding message to biotech management is to go for the big KISS – and enjoy the investor passion.
He says KISS is especially relevant when presenting to fund managers who might look at thousands of stocks.
Beyond the dense Powerpoints, Precision seeks an unequivocal answer to a precise question.
It's not number 42 and the meaning of the universe, but 'are they asking for more money?'
