Good morning,
Welcome to today's edition of The Armchair Analyst, a 5-minute daily update on the ASX life-sciences sector.
Next week, the Australian federal budget will be announced.
Already, we are starting to see some policy leaks as the government looks to either soften the blow of unfavourable decisions or simply road-test their popularity.
One standout for the biotech sector is the possible change to the 50% CGT discount:
(Source, AFR)
Alright, tax lesson 101.
(Super simple version, not tax advice)
When you sell an asset (shares, property, crypto, business assets, etc.) for more than you paid, you make a capital gain.
This capital gain is added to your income for the year, and you are then taxed on it at your normal marginal tax rate.
If you’ve held that asset for more than 1 year, only half of that gain is taxable.
That’s the 50% CGT discount.
This policy is designed to incentivise building wealth by holding assets for the long term.
But it is increasingly likely that this 50% CGT discount will be removed.
This would be a blow to the start-up, research, and innovation industries in Australia.
Particularly biotech.
Investment in biotech is, by nature, high-risk, high-reward long-term investing.
The EXACT type of thing that the CGT discount was designed to encourage.
IF you suddenly double the tax bill on any large windfall, you dramatically weaken the upside case for backing high-risk biotech.
Therefore, the rational investor will look for investments whose risks match the rewards.
Safer, dividend yield stocks NOT high-risk, high-reward biotech companies building life-saving technologies.
So where does the capital come from for earlier-stage biotech companies?
Good question. Harder answer.
Recognising this, it was floated that the R&D tax breaks cap could be extended beyond US$150 million…
(Source AFR)
But as I published literally this week, the R&D tax incentive turns Australia into a services business, NOT an innovation business.
When the final budget is announced, I really do hope that healthcare startups and stocks are carved out from the 50% CGT discount.
Because if it goes through as floated, the message to anyone with capital in this country is clear…
Don't bet on the long shot. Play it safe.
Don't be the founder. Be the service provider.
Don't invest in a cure. Just buy the stock that pays the dividends from the one that’s already been found.
That's not an innovation economy. That’s managed decline.
Sorry for the rant today…
See you all next week,
The Armchair Analyst.
The Pulse Check
Amplia Therapeutics (ASX: ATX) will evaluate its lead asset narmafotinib in combination with chemotherapy for ovarian cancer in a 15-20 patient clinical trial. (ATX)
🪑Nice update. Building up the indication profile after successfully securing 5 Complete Responses in its pancreatic cancer trial.
Proteomics International (ASX: PIQ) traded down 25% yesterday, with $1M in volume, reaching all-time lows amid no news. (PIQ)
🪑 This one was strange, so I made a few phone calls, and it turns out that a paid stock tipping newsletter put a SELL recommendation on the company.
Brutal.
I don’t know too much about the company, but I’ve lined up a call with the new CEO today to get the full story. Watch this space.
Genetic Signatures (ASX: GSS) announces a board reorganisation, including Anne Lockwood transitioning to Non-Executive Director after serving as interim Managing Director.
🪑 After a brief run in the stock, GSS is trading once again about $10 million under cash backing.
Anne Lockwood was brought in to clean up the cost base and realign the business. Does her conclusion in the role signal that the job’s done… or the mess too big to clean up?
The major selling in the stock over the last week would suggest it’s the latter.
M&A, Big Pharma Wants a Wife
Bayer to acquire Perfuse Therapeutics for up to $2.45B, bolstering eye disease drug pipeline. (BioPharma Dive)
Angelini Pharma to acquire Catalyst Pharmaceuticals for US$4.1B - a premium multiple for a profitable rare-disease cash-flow story. (Biopharma Dive)
Roche to acquire PathAI and its AI-enabled companion diagnostic algorithms for up to US$1.05B. (FierceBiotech)
🪑 That’s 3x billion dollar acquisitions in the US in one day. Getting it done.
