Bottom Line: Biotech risks

THE TROUBLE with biotechnology stocks is they ask you to take a lot on trust. Celltech, which with its pounds 50m placing and public offer of 20 million ordinary shares at 250p each is raising pounds 30m, does not expect to make a profit until 1997-98.

But if everything goes according to plan - a big if - Lehman Brothers' pharmaceutical research team calculates there should be an average return of about 30 per cent a year.

Broadly speaking there are three ways of valuing these stocks - by comparative market capitalisation relative to number and status of development products, by comparative market capitalisation relative to research and development spending, and on a discounted revenue basis. On all three Celltech's price and pounds 176.5m market capitalisation look reasonable.

But before buying Celltech it is important to understand the risk. In its case Celltech Biologics, the subsidiary manufacturer of monoclonal antibodies - which is profitable, throws a floor under the share price at about 50p a share. But should the septic shock treatment in particular not bear fruit returns would fall sharply.

Serious buyers should hold the shares until the research has proved fruitful or otherwise.