Between the lines: Biotech's cloudy market outlook

One stock code does not a sector make, but the imminent listing of biotechnology company Genesis Research and Development adds a component to the local market that has long been overdue.

It is a leading example of the knowledge economy based on New Zealand's traditional strengths in life sciences rather than information technology.

Genesis, the country's biggest biotech company, is raising $34.5 million ahead of a September 14 listing on the New Zealand and Australian exchanges.

The company leads the world in gene research that provides the springboard for developing immune therapies for psoriasis, asthma and eczema, and for improved products in forestry and horticulture.

While there is an undeniably patriotic feel to a New Zealand firm bucking the brain-drain and employing 100 scientists from around the world, owning a piece of a six-year-old biotech company will not appeal to everyone.

Opponents of anything remotely to do with genetic engineering are unlikely to rush to buy shares, while others face the difficult task of assessing how to value a company that has consistently lost money as it has ploughed funds into research.

Accepting the valuation models that price companies of this ilk will not be easy for many investors - though that has not stopped them piling into e-commerce stocks.

A key concern with small biotech companies is that because cashflows remain negative for so long, announcements of technical developments are the primary way in which they can boost share prices.

But the market's ability to analyse the moment of those is weak at best.

At least Genesis' softly, softly tread to market will help allay those fears.

Founder Dr Jim Watson and his team have consistently steered away from hype.

They have stuck to their initial pledge that they would seek a stock exchange listing only when they could offer something tangible to investors, rather than be in need of cash.

With several multimillion-dollar deals in place with large bio-pharmaceutical companies, that situation is at hand.

In the past, the company has gone cap in hand to friendly institutions to fund its research.

Money raised in the float will finally give the company decent breathing space.

And its more solid status as a listed entity will hopefully make it more attractive to investors beyond Australasia.

There have already been 100 floats of all kinds this year. About 50 more are expected by the end of the year. Genesis may get caught in the hype.

But ultimately it is earnings that determine a company's worth.

Alternative models that tried to explain the seemingly ballistic prices achieved by e-commerce startups with not much more than a website and a will to spend are being quietly abandoned along with the now-forgotten euphoria.