Business outlook: Deals with big drugs players will be the key

biotech

Investors in biotech companies will be looking forward to a strong recovery after 1997, which was certainly a year to forget. Strangely, this contrasted sharply with the performance of the big pharmaceutical stocks, most of which advanced strongly in the hope of more consolidation.

British Biotech, Celltech and Scotia all reported setbacks for some of their most important products, and Biocompatibles fell from grace after failing to secure its relationship with Johnson & Johnson of the US. Perhaps fittingly, the year ended with the departure of David Horrobin, chief executive of Scotia and one of the industry's most colourful characters, whose failure in commercialising the group's science forced him out of Scotia and back into the laboratory.

Small wonder that share prices in the sector fell an average 46 per cent from their highs in a rising market. This year can hardly be worse.

The flow of good news should improve, with Chiroscience expected to announce European approval in the first half for its long-acting anaesthetic, Levobupivacaine and a marketing partner for the drug. British Biotech is expected in April to launch its first product, Lexipafant for pancreatitis.

However, the key to sentiment will be deals with big pharmaceutical companies. These should become more frequent as the heavyweights consolidate, focus their financial might on marketing and increasingly rely on young biotechs to supply them with cutting-edge ideas. Despite its present travails, Biocompatibles, for instance, believes that future growth will come as much from this area as any other.

More deals might also encourage investors to return to the sector after the hammering many of the biotechs took in 1997. That, in turn, would spark another wave of flotations - and there are plenty waiting in the wings - which would have the salutary effect of broadening investor choice.

It is also worth noting that biotech and pharmaceutical stocks are not sensitive to troubles in Asia or slowing economic growth at home.

But then, as 1997 has more than amply demonstrated, biotech is a sector for those with deep pockets and a long-term vision, not the short-term horizons more normally associated with quoted stock markets.

- Sameena Ahmad