Biotechnology is the high-risk, high-reward end of health care, offering rich pickings to investors who choose the right companies and get in early enough.
The rocketing share price of UK biotechnology companies is due in part to a high level of investment interest and the small number of suitable investments. The UK has 15 quoted biotech companies compared with 275 in the US. Continental Europe lags further behind.
Biotechnology is global, but dominated by the huge markets where new drugs are inevitably targeted. Celltech has five collaborative ventures with drug majors, three with US companies.
Although a strict definition hinges on the manipulation of DNA for new medicines, few companies limit their activities to genetic engineering; many also work on chemical drugs or have have activities in drugs delivery and diagnostics. These companies are at the leading edge and are often young, small and loss-making.
Lehman Brothers, the securities analyst, believes small biotech companies will provide much future growth for big healthcare companies. Through partnerships, biotech companies will fill the drugs pipelines of the bigger companies.
Small wonder that investors are drawn to biotechs, although risks are high. There are no guarantees that potential drugs will make it through all the regulatory hoops.
Recent enthusiasm of institutional and private investors in the UK for biotechs has helped in raising capital. This month, Chiroscience took advantage of a buoyant share price to raise pounds 40m for research, and Vanguard Medica, which is developing a migraine treatment, soared to a 40 per cent premium to its placing price.
The US sector has been very cyclical with prices soaring or slumping, making capital raising for research difficult. Whether the fledgling UK sector can survive a major disappointment from one of its leading companies remains to be seen.