International -- Finance: STOCKS
EUROPE CATCHES BIOTECH FEVER (int'l edition)
As startups report promising drugs, investors are pouring in
British Biotech doesn't have a product to sell, but its market capitalization has surged to nearly $3 billion--up 17% in just three days in late May. The latest flurry of excitement was sparked on May 21, when the Oxford-based company presented promising results from clinical trials of its anticancer compound Marimastat. Investors are wagering that British Biotech could produce the first blockbuster drug to come out of Europe's fledgling but fast-growing biotech industry.
And they are betting heavily. Since January, shares in Britain's emerging bioscience sector have risen 54%, according to Nomura Research Institute's biotech index. The index, made up of 17 publicly traded companies, has outpaced the overall London market's gains by more than 20 to 1. Fueling the rise is good clinical news from industry flagships such as British Biotech, Scotia Holdings, and Cortecs International. "It's not just an airy-fairy science story anymore," says Jeremy Curnock Cook, director of Rothschild Asset Management's biotech unit, which runs two global funds with combined assets of $435 million.
"RIDICULOUS VALUATIONS." But the high-flying share prices are prompting skeptics to warn that the new enthusiasm for European biotech may be just another speculative bubble. Investors such as Henrik Rhenman, manager of SE Banken's pharmaceutical fund, point to the "ridiculous valuations" of many European biotech stocks compared with the U.S.'s larger biotechnology sector. And unlike American biotech giants, no publicly traded British biotech company has a significant drug on the market. Few can show meaningful sales, let alone earnings.
Nonetheless, investors are excited about British Biotech, founded in the mid-1980s by former G.D. Searle & Co. research executives Keith McCullagh and Brian Richards. Trials showed that the company's Marimastat stopped or slowed the progress of pancreatic and ovarian cancer in 56% of patients at the optimum dose, as measured by cancer-antigen levels. Assuming an orally administered drug could act against a wide variety of cancers, analysts are estimating that peak annual sales could reach $1.5 billion by 2003.
That's a big "if," since Marimastat hasn't even made it into late-phase clinical trials. Even so, British Biotech's rising fortunes are rubbing off on other British and Continental drug startups. And new biotech ventures are popping up fast. Although there are only about 28 publicly traded companies, mostly in Britain, Ernst & Young estimates that at least 584 entrepreneurial bioscience companies are scattered across Europe--up 20% from 1994.
SPLASHY IPOs. Spurring the growth is the rapid restructuring of the pharmaceutical industry. McCullagh and Richards had been running a British research unit for U.S. drugmaker Searle that was axed in 1985 when Monsanto Co. gobbled up Searle. The next year, they launched their own tiny startup, inspired by Genentech Inc.'s spectacular 1986 initial public offering. Now, with mergers between Switzerland's Sandoz and Ciba-Geigy and Britain's Glaxo Holdings and Wellcome producing huge cutbacks in jobs, many former executives are becoming entrepreneurs. For example, in Britain, former Glaxo senior executive John Padfield is now chief executive at Chiroscience.
The sizzling market for biotechnology stocks is also encouraging more startups to sell shares to the public. Last fall, in splashy IPOs on the London Stock Exchange, Peptide Therapeutics raised $40 million and Biocompatibles International raised $23 million. On the London exchange alone, the combined market capitalization of emerging bioscience companies tripled last year, to $4.7 billion. Now, with new bourses such as France's Nouveau Marche, London's Alternative Investment Market, and the planned launch of EASDAQ, a Brussels-based electronic market for high-tech startups, there could soon be more bioscience flotations--including Germany's MorphSys, France's GENSET, and Denmark's NeuroSearch.
Meantime, the Cassandras are being mostly ignored as investors keep pouring money in. "The rewards are very high if you get it right," says James Noble, British Biotech's finance director. He should know. Soon after his company reported its first promising clinical results with Marimastat late last year, he exercised stock options, netting some $2.5 million. Numbers like that are bound to spur the search for Europe's Genentech.By Julia Flynn in LondonReturn to top