Bio babes board cash bandwagon: The Investment Column

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The Independent Online
Two more biotechnology companies jumped on the cash-raising bandwagon yesterday. Cantab Pharmaceuticals' call for pounds 25.7m in a placing was merely confirmation of an announcement it made last month. The deal will help finance further development of Cantab's novel cancer and infectious disease therapy based on stimulating the sufferer's own immune system. Given that the group is using cash at the rate of around pounds 8.5m a year, the new money, coming on top of pounds 8.6m in the bank, should see it through to its first product being launched on the market at the end of the century.

A more interesting move was yesterday's decision by Celltech to sell its Biologics drug manufacturing business to Alusuisse-Lonza of Switzerland in a pounds 77m deal. The disposal will leave Celltech with one of the strongest balance sheets in the sector, clearing out most of the group's borrowings and eventually bringing in pounds 50m in cash, to add to pounds 20m already in the bank.

But it has left analysts puzzled. Celltech always looked a low-risk bet on biotechnology, partly because drug manufacturing provided a more secure revenue stream. Unlike other biotechnology "businesses" Biologics was profitable, turning in pounds 2.1m last year on sales of pounds 18.1m.

Celltech is turning that logic on its head, saying the drug manufacturing side is in fact entering a period of much higher risk. The company claims to have been flagging its intention to dispose of the business for about a year, but the question must be what it does with the money. Research and development spending is unlikely to rise much above last year's pounds 17m and Celltech could move into modest profit by 1998 as drug revenues of over pounds 60m start to roll in. Despite yesterday's 37p jump in the shares to 645p, potential investors should exercise caution until the strategy becomes clearer, lest it decides on a spending spree.