MARKET COMMENT
Biotechs Lose Out To The Big Boys

By David Kuo (TMFDragon)
November 18, 2002

The story of David and Goliath is supposed to be a demonstration of the meek triumphing over the strong. Smaller players can succeed through their guile and ingenuity. In the investing world, and in particular in the drug sector, does this hold true?

In the drug sector, the biotechs are seen as the Davids competing against the established multi-national drug companies. Some of these biotech outfits have proved that they can exploit certain niche areas, where they're either neglected by the big boys or require specialist knowledge.

Many UK biotechs hope to emulate the likes of Amgen (Nasdaq: AMGN) in the US. This highly successful company has managed to prove that success in the laboratory can be a springboard to commercial success. However, the biotechnology industry in the UK has, thus far, failed to measure up to Amgen's achievements. The table below lists the share prices of a group of popular biotechs at the start of this calendar year and their closing prices as of Friday. Equivalent prices are given for GlaxoSmithKline (LSE: GSK) and also for the FTSE 100 index.                                                          

                                         01/01    15/11       change    

Celltech Group (LSE: CCH)                 867p     334p        -62%
PPL Therapeutics (LSE: PTH)                78p       7p        -91%
Oxford GlycoSciences (LSE: OGS)           645p     133p        -79%
Cambridge Antibody Technology (LSE: CAT) 1883p     515p        -73%
PowderJect Pharmaceuticals (LSE: PJP)     575p     400p        -30%

GlaxoSmithKline                          1710p   1255p         -26%
FTSE 100                                  5218    4091         -22%

There appears little to commend any of the biotechnology based on these companies' share price performances, although it's fair to say we are looking at a relatively short period of time. The often-repeated argument that you would need to invest in several such shares in order to spread your risk also looks a little weak. An equal investment in all five companies at the start of the year would have lost you two-thirds of your money.

In fact the chairman of Cambridge Antibody Technology said today that there was a "lack of investor appetite for biotechnology stocks". This is not that surprising given that companies such as CAT are still making hefty losses. The company today posted widening losses of £32m compared to a loss of £12m last year.

However there is light at the end of the tunnel for the biotechs. Shares in Antisoma (LSE: ASM) leapt a whopping 71% to 22p this morning after announcing a strategic alliance with Roche Holdings. The Swiss drug company has acquired the rights to Antisoma's cancer drugs. It has also taken an equity stake in the small biotech. However today's share price still falls a long way short of the peak price of 223p achieved just two year's ago.

The developments at Antisoma demonstrate, to some extent, the rationale for the existence of many of these biotechs. These companies provide useful auxiliary research facilities for the larger drug companies to exploit when the time is right. In the pharmaceutical industry it seems that David is is doomed to walk in the shadow of Goliath.

The author own shares in GlaxoSmithKline and Celltech.