Israel's biomed industry has not stopped making headlines on the Tel Aviv Stock Exchange (TASE) in recent months. There is a non-stop flow of developments, which led many companies to report double digit returns in 2009 and supported the TASE's decision to launch a Biomed Index.
The Biomed Index sought to give the public at large that does not understand the sector an instrument by which it can gain exposure to the field while spreading the risk. But just over four months after it was launched, the Biomed Index looks like it was launched when it peaked. Over those four months it has recorded the worst performance of all the TASE's indices, falling 20% while over the same period the Banking Index fell 10% and the Tel Aviv 25 lost less than 5%.
Opinion is divided over the sector's future performance and the question is if the public has again moved in too late on an investment trend, or if this is just a temporary correction, which in inflicting the TASE in general in the past few months?
Some market sources feel that there is a significant cooling off towards the sector in recent months, and that the Biomed has peaked, while speculators have decided to realize profits and move onto gas and oil exploration.
One market source said, "Several months ago you could identify many speculators in the biomed sector who were helping the large rises in the prices of biomed shares. Therefore, it was easy to raise capital from the public back then, but now the chances of biomed companies to successfully raise money from offerings, has fallen significantly."
Despite the negative signs, IBI remains positive towards investors in the sector. IBI VP business development Ella Alkalai said, "Investors give more weight to risk and the moment that the market will look more optimistic or there is an acquisition or dramatic approval then investors will return to these shares."
A glaring example of the change of direction in this sector was provided by Kamada Ltd. (TASE:KMDA). The company announced at the end of the first week of July that it has received US Food and Drug Administration (FDA) approval to market its Glassia treatment for treating ATT deficiency.
In the past, such an announcement would have seen a significant jump in the price of the share but at the moment investors responded with indifference to the development which the company CEO David Tzur described as "a central milestone for Israel's biomed industry."
On the trading day after the announcement, the share fell 4.1% and in the three days after the announcement the share was down 7.5%.
Regarding general Biomed Index trends, Harel Finance analyst Steven Tepper said, "It is a question at the macro level of where the market is going. You have to pay attention to the fact that the Biomed index is very volatile. If the market rises 1% then the Biomed Index will rise 3%. When there will be investment instruments structure around the index then it will be possible to have a spread. On the other hand, it will also bring in risk because if you have an Exchange Traded Fund it will include all the companies, the good ones and the bad ones."
Tepper succeeds in seeing the full half of the cup. He said, "There is a positive element in the Biomed Index, especially when the index falls. If the market falls, then the Biomed Index falls but this is more psychological and less dependent on economics. Where economics is important is the ability to raise funds."
He added, "We are talking about companies that develop drugs and equipment that will enter the market in three to five years and demand is very inelastic. In a crisis opportunities are created because there are companies that only recently raised capital and they can carry on with that money quietly developing. In contrast companies that don't have cash in their coffers are more problematic. Aphosense, Clal Biotechnology, Prolor, BioLineRX are all companies that have money, and will continue to work with it even if their share goes down a lot."
IBI pharma analyst Natalie Gottlieb thinks that despite the negative returns it was still a good thing that the Biomed Index was launched. She said, "When an investor builds a portfolio, there is still room for investment in the biomed sector. If the market continues to tread water, investors will continue to prefer heavier more traded shares like Teva and Perrigo. But it is a good thing that the Biomed Index was launched. It is a sector that is very important for the local stock market and we need more time before we can judge it."
It could be that the cooling off towards the sector stemmed from the TASE decision, as revealed by "Globes" to suspend the issuing of Exchange Traded Funds in the Biomed Index due to fears that such ETFs would intensify volatility.
Published by Globes [online], Israel business news - www.globes-online.com - on July 12, 2010
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