Are these two hot biotechnology shares to buy today?

Biotechnology is big business, but can you spot tomorrow’s winners?

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As the world’s population rises and gets wealthier, and the demand for food and medical services grows, the future for biotechnology will surely be rosy — but which of today’s companies will be the winners?

Breeding success

Shares in Genus (LSE: GNS) have almost doubled since April 2014, to 2,003p, and since 2001 they’ve managed a 1,500% return.

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The firm describes itself as “the world’s leading provider of bovine genetics and reproduction services,” which does sound nicer than saying it mainly sells bull semen. It’s actually cleverer than that sounds, and there’s a lot of genetics wizardry behind the firm’s breeding research. It’s big in the pork business too, and its technology is applicable to other areas.

Earnings have been strong over the past few years, and though dividend yields are low at just 1.4% last year, they’re well covered and are strongly progressive — the annual handout has been growing at around 10% per year.

A downside is that the shares are currently highly rated, on a forward P/E multiple of a fraction under 30 for the year to June 2017. However, with a 10% rise in EPS forecast, further growth in the years ahead could see returns rising steadily.

With September’s full-year results, chief executive Karim Bitar said: “We established gene editing as a core strategic longer-term growth platform … that offers considerable opportunity in disease resistance,” pointing out that the “GSS technology is ready for commercial launch and we expect to have legal clarity in the coming months on when we will be able to bring it to market“.

I admit I’m torn over the stock’s high current valuation, but I do see a potentially lucrative future for Genus.

Gut feeling

4D Pharma (LSE: DDDD) isn’t yet profitable, and the AIM-listed researcher’s shares are out of favour — after climbing to a peak at the end of March, they’ve retreated by 19% to today’s 790p. But the firm does have some enthusiastic supporters — ace investor Neil Woodford has a 24% stake in the company through his Woodford Investment Managements firm, and Invesco owns 14%.

4D is delving into the human gut, specifically looking for drug candidates among the hordes of bacteria to be found therein. And it’s making some solid progress.

In July the firm reported encouraging phase 1 results from its single strain live bio-therapeutic for the treatment of Irritable Bowel Syndrome, Blautix, with a better-than-placebo response. These are early days, and phase 1 is really about safety and tolerability rather than efficacy, but hopefully the company will move on to phase 2 trials in 2017.

Phase 1 trials are also under way on the firm’s candidate for the treatment of Paediatric Crohn’s disease, Thetanix, also a live bacteria extracted from the human gut.

These are widespread and often debilitating conditions, and success in these fields could be very profitable indeed. 4D has so far built up a library of around 3,000 bacterial strains and plans to extend its research into other diseases, including cancer.

The company is burning through around £10m a year, but at the 30 June interim stage there was cash and equivalents on the books of £75.4m, so there’s plenty of funding there for a few years yet. As blue-sky hopefuls go, 4D Pharma could be a winner.

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