Celltech looks a real tonic

INVESTORS attracted by the potential in the biotechnology industry but worried about the risks should look at Celltech. The group has excellent management and a broadly based pipeline of potential new drugs which could yield blockbuster returns. It is not over-dependent on any single project. At the same time it has plenty of cash in the balance sheet, a profitable and dramatically expanding manufacturing business, and alliances with established industry giants which ensure that it is at no risk of running out of money for the foreseeable future.

Rivals are increasingly taking note of Celltech as a model of how a biotechnology company should be managed in the 1990s. In the United States, by contrast, many smaller biotech companies have funding problems. This changing perception has been reflected in a share price up from 219p, when I wrote about the group last year, to 286p currently, against a flotation price of 250p in December 1993.

Investors should not be put off by the rise that has already taken place. Despite the cautious approach, Celltech is playing for high stakes and the bull market in the shares may have only just begun. Fair-value models for 1997, making the admittedly considerable assumption that there are no great disappointments in clinical trials between now and then, could see the shares worth more than £l0, even though the group is unlikely to be seriously profitable much before the end of the decade.

One factor in the transformation of Celltech's prospects is a new management team. Dr Peter Fellner and Dr David Bloxham, respectively group chief executive and chief executive of Celltech Therapeutics (the drug development arm), both ex-Roche, were brought in to give the group focus. They have transformed it. But the real pay-off will come as we approach the 10- year anniversary of their arrival, when we will know if any of the trial drugs is a winner.

The next couple of years could be crucial. The group has two particularly promising compounds: CDP 571 for the treatment of rheumatoid arthritis, inflammatory bowel disease and septic shock; and CDP 840 for the treatment of asthma. Some idea of how seriously these compounds are taken in the industry comes from the partnerships Celltech has formed to develop them. Bayer is committed to make payments (known as milestone payments) to the group of £29m to fund the development of CDP 571. Milestone payments of up to £31.5m, payable over a five-year period, have been committed by Merck on CDP 840. The group has alliances with four large companies with milestone payments of £62m in total, of which £l3.6m has been paid so far. The deal is that Celltech does the initial research. The huge cost of further development and marketing is then handled by the companies. Yet Celltech can still expect a share of between 25 and 45 per cent of the profits on its products.

A common element in all Celltech's compounds is their relation to human monoclonal antibodies and the immune response. In effect, the group, with a research staff of 185 based in Slough, has become a world-recognised centre of excellence. This has other benefits. First, the group is a leading manufacturer of antibodies for its own and other companies' use. Last year this division made profits of £2m on £l4.2m of sales, despite considerable disruption at the factory. Profits are also understated by up to £2m because much of the production is supplied at cost within the group. Expansion is under way in both this country and New Hampshire in the US. Profits from this division could be £5m to £l0m by the end of the decade.

A worldwide surge of interest in the therapeutic use of antibodies could also generate royalties for the group, because many companies will be using Celltech's technology. First fruits are being seen with a new drug launched by Eli Lilly, which could generate royalties for the group of more than $5m (£3m) in a few years if sales reach $250m. An educated guess is that as other human antibody-based compounds come on stream, sales could reach $lbn, generating perhaps $20m of annual profit for Celltech.

Celltech's current market capitalisation of £203m could be justified by its human antibody manufacturing and licensing income, even if none of its third- party-funded drug development programmes is successful. Yet prospects look good or the big drug companies would not be providing such chunky payments. If just one of these drugs is a winner the rewards could be spectacular. The shares look an attractive speculative play with far less downside than is usual with biotechnology investments.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

They fled war in Syria...

...only to get stuck and sidetracked in Hungary
From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

Title sequences: From The Prisoner to Mad Men

Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

Giorgio Armani Beauty's foundations

Sumptuous fabrics meet luscious cosmetics for this elegant look
From stowaways to Operation Stack: Life in a transcontinental lorry cab

Life from the inside of a trucker's cab

From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

Kelis interview

The singer and sauce-maker on cooking for Pharrell
Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea