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MARKET COMMENT
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Carburton Street, London -- In October, Richard Bungay of Celltech Group (LSE: CCH) revealed to us the reason behind the company's disposal of its vaccine business to PowderJect Pharmaceuticals (LSE: PJP). He said that the sale of Medeva Vaccine, which it acquired as part of the Medeva group in January 2000, was a conscious decision to dispose of a profitable, but cash-hungry, business. Bungay added that PowderJect, as a specialised vaccine maker, was better positioned to capitalise and create value from the business. Indeed, Celltech's old vaccine business has worked wonders for PowderJect, enabling the Oxford-based biotechnology company to today post its first ever interim profit. For the six months to September, PowderJect reported a net profit of £4.6m compared with a loss of £11m last year. Revenues increased sharply, up from just £3.1m to £30.2m, largely as a result of vaccine sales. Dr Drayton, Powederject Chairman and Chief Executive, was delighted with the results and commented that his company had been transformed into a high-growth vaccine business. As part of the company's strategy, Powderject will dispose of the drug applications of its powder injection technology. But PowderJect said it intends to retain ownership of its core powder injection technology and offer licences for the drug applications. On its own, the vaccine business is relatively old technology. Vaccines for tuberculosis, yellow fever, cholera and influenza are unlikely to be value enhancing but could be highly cash generative, especially if critical mass is achieved. But current developments in the pipeline could lead to more exciting prospects for the company. PowderJect is working on flu immunisation by using a powdered version of its Fluvirin treatment, and elsewhere in the product pipeline, there is ongoing development of DNA vaccines. These include immunisations for herpes simplex and influenza. The company expects at least one vaccine to enter human trials next year. A first ever profit is an important milestone for any biotechnology business. Now PowderJect has to demonstrate that this is not a flash in the pan, but a sustainable performance. To do that, it will have to start addressing issues such as return on capital and all those other things that are used to characterise established drug developers -- because PowderJect has come of age.