Good morning, Armchair Army,
Welcome to today's edition of The Armchair Analyst, a 5-minute daily update on the ASX life-sciences sector.
Question.
How do you “King Make” an industry as a country?
You’d probably…
Start by picking the industry you wanted to win in.
Set ambitious targets.
Back local companies.
Grant tax concessions to encourage investment.
Finally, create national champions who foster the talent to build the next generation of industry leaders.
Win.
… Welcome to the Chinese 5-year plan to “King Make” the biotech industry.
(Source: BioSpace)
Now, tell me… how would you kill an industry as a country?
You’d probably…
Increase tax on investments.
Discourage local champions.
Take away vital government incentives to help companies commercialise.
Encourage talent to move offshore.
Lose.
… Welcome to the Australian tax plan.
Last Friday, the Chinese government announced its five-year plan for the biotech industry.
By 2030, China wants…
At least 25% of first-in-class drugs in the global market to originate from China.
Grow the biotech industry by 20% annually.
Grow the industry to a combined US$520 billion in annual revenue.
Set at least 50 companies as national champions.
Have 5 Chinese companies develop drugs that reach blockbuster status.
Again, all by 2030.
To me, this was a stark contrast between what Australia is doing in the biotech industry with the removal of the capital gains tax discount and caps on the refundability of the R&D grants.
While China is forward-looking with ambition.
Australia is fighting over a shrinking pie.
The thing about the healthcare industry…
It isn't local. It's global.
Australian companies compete on the global stage for capital, talent, resources and attention.
Our policies need to reflect that.
So…
This government still has time to “King Make” the healthcare industry here in Australia.
… Not just the service providers running the clinical trials.
… Not just the universities generating the early science.
But the actual, late-stage companies looking to take drugs through to market.
Where the real value inflection point lies.
Here’s the playbook.
Alright…
Charmers, you listening?
STEP 1: Remove all capital gains tax from healthcare companies.
Create a tax incentive.
STEP 2: Keep the R&D refund for Australian companies only, without timelines or caps.
Support local companies.
STEP 3: Ensure these carve-outs apply to publicly listed companies.
Create national champions.
I hate to say it, but China has written the playbook.
Now it's up to us whether we follow or get left behind.
Let’s dive in...
🚨 BREAKING NEWS: Microba and Genetic Signatures proposed merger announced today… I’ve put it “Under the Microscope”.
The Pulse Check
Nexsen Limited (ASX: NXN) enters a trading halt pending an announcement on its RAPID-GBS clinical study. (NXN)
🪑 Good luck 🍿
Rhythm Biosciences (ASX: RHY) completes first phase (tech transfer) to the NHS laboratory assessment for ColoSTAT. (RHY)
🪑 Milestone ticked
Nervous wait for Paradigm (ASX: PAR) shareholders as the results of its Phase 3 clinical trial are scheduled for tomorrow.
🪑 ALSO, an investor lunch scheduled for Wednesday has been cancelled.
… who knows what that means, but it’s ominous.
This morning, Genetic Signatures (ASX: GSS) and Microba (ASX: MAP) agreed to merger terms. MAP shareholders will own around 67% of GSS.
(Source: GSS)
This is Act III of our boardroom battle between BCAL and Microba for Genetic Signatures.
After a series of 249Ds, Microba has made the next move, proposing a merger with Genetic Signatures.
Initial take?
A great deal for Microba shareholders.
$22 million in cash for 33% of the company… and Microba is only capped at $35 million.
If it raised capital like that, it would have to dilute WAY more.
BUT… here’s the catch.
BCAL has 18.5% of the GSS, so it has a blocking stake.
BCAL also has multiple 249Ds against the GSS board:
3 September: Remove chairman Michael Aicher and appoint Susan Forrester and former GSS CEO John Melki as directors.
17 September: Remove director Jenny Harry, through a further requisition.
GSS has 21 days to call the meeting; we are on day 18, and the vote has to be held within 2 months.
A GSS AGM is also scheduled for 16 November.
(and a general meeting scheduled for October)
My guess is that at this next meeting, all the resolutions will be on the table.
A merger with Microba, the 249Ds from BCAL, everything.
This means GSS shareholders will choose…
BCAL or Microba.
There is a third option. Microba buys BCAL’s block stake at a premium, clearing the board for a merger.
I suspect many phone calls to shareholders between now and then.
Lobbying starts now.
See you all tomorrow,
The Armchair Analyst
What is an armchair pick?
An Armchair Pick is an invite-only spot I reserve for my highest-conviction investment ideas.
It's a paid arrangement, but to align myself, I only take my fee in shares - half escrowed for 6 months, half for 12.
It is general commentary only, not personal financial advice or a recommendation to buy, sell, or hold. Always see the disclosure at the top of the article and do your own research.
