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The markets Friday, 8 March, 2002, 09:45 GMT
Are biotechs the best medicine?
Biotech share price
The share price tells the story...
If ever a stock market sector deserved the adjective mercurial, it must be biotechs.

Shares can go up and down like a bungee jumper - and often these are companies with no profits and which in some cases don't produce anything.

But the attractions are obvious - these medical research businesses are playing for big stakes.

Wouldn't you like to be an investor when a company comes up with a cure for cancer?

PPL Therapeutics hit the big time when it cloned Dolly the sheep in 1997, a year after the company had floated.

At one point, the shares hit 452p, but by this year they were really in the doldrums.

Then in January came news of the cloning of five genetically modified piglets, whose organs and tissues would be less likely to be rejected if transplanted into humans.

There were high hopes for the piglet clones
The shares rose to 77p, way off earlier highs but nonetheless a gain of nearly 50%.

However, disaster struck when PPL's biggest rival revealed it had done similar work last year and was about to make its results public.

Exclusivity can be everything, and PPL's stock fell as sharply as it had risen. The news that Dolly had developed arthritis didn't help. The price is now about 50p.

Then there's British Biotech, once the darling of the sector.

In the mid 1990s, the share price almost touched 300p, but it wasn't to last. The great hopes for this business simply haven't been realised.

A drug which appeared to be a cure for cancer failed, and the company had to restructure, losing two of its bosses and hundreds of staff.

Biotech worklrs
British Biotech has shed staff
The shares are now around 15p, turnover has fallen steadily and the business still makes a loss - 21m last year.

But chief executive Elliot Goldstein says the company has learned from its mistakes.

"Perhaps the most important difference at British Biotech is the cultural change," he says.

"Most of the work is now done in collaboration and co-operation with other companies and institutions around the world.

"We're sharing the costs and risks with those partners."

There are currently five products in clinical trials but the company now has a policy of cutting its losses when a programme isn't producing results.

These examples are reflected in the sector as a whole.

It has suffered badly even by the standards of the recent stock market downturn.

Just this week, Celltech was dropped from the FTSE-100 and Oxford Glycosciences from the FTSE-250 index.

Undeserved heights

Some analysts attribute the problems to the fact that biotechs have been lumped in with technology stocks - and we all know what's happened to them in the past couple of years.

Shares were reaching undeserved heights and a correction was needed, they say, but not to the extent we've seen.

Those in the industry hope the more realistic valuations will provide a solid platform for growth in 2002.

Biotechs are seen as high-risk stocks, but that big breakthrough could see them soar in value.

Once a drug gets approval and reaches the market, the company could be getting 50% of sales, compared with perhaps 5% a decade ago.

No wonder biotech shares fell when the UK and US Governments said they wanted scientists to have free access to research on the mapping of human genes.


Many biotech companies had hoped to profit from their research in this area.

The problem for many companies is that - like British Biotech - they don't make money until the products go on sale, and even the most patient investor can become weary of backing a non-profit making venture.

But getting the right drug or treatment can be the key to a treasure chest.

PPL might yet have its day, as the pig part industry could be worth 7bn a year - although the technology could take a decade to get ready.

If you're looking for an investment, there's plenty of choice. The number of companies in the European biotech sector has risen from 586 in 1996 to near the 1,400 in the US, and the UK is the biggest player this side of the Atlantic.

Just be prepared for a real roller-coaster ride, and take comfort from the fact that many of those companies still surviving have built on their past experiences, good and bad.

Share prices quoted are correct at 7/3/2002

Rob Pittam at British Biotech
"The firm has gone through a radical restructuring"
Chief executive Elliot Goldstein
"We are a business - it's essential that we bring drugs to the market and create a profit"
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