This has been particularly harsh for companies such as Chiroscience, which yesterday reported a 21 per cent fall in its interim pre-tax loss to pounds 11.4m. The shares have fallen from a peak of 520p to just over 200p in less than two years.
But look at the facts. First, Chiroscience is only months away from the regulatory approval of a potential blockbuster, the local anaesthetic Chirocaine. The drug, to be marketed by Zeneca, is expected to net more than pounds 234m in sales over the next six years. Chiroscience has already received a pounds 15m up-front payment from Zeneca and will pocket more than 10 per cent of future sales.
Second, Chiroscience has pounds 59m in cash, enough to last it until 2001 when it expects to post a profit - a rarity among biotech companies. Cash flow will also be boosted by Chirotech, the unit which produces the ingredients for other drug development companies. This means Chiroscience will not need to raise funds on the market at a time when few fund managers are willing to open their wallets. Also, the management's plan to link up with smaller companies will help Chiroscience to broaden its rather narrow drug portfolio.
Chiroscience's other main problem is a gap in its drug pipeline after Chirocaine, but the anaesthetic's sales should give a breathing space until the new compounds come along.
The shares rose 7 per cent to 243.5p yesterday as the market began to realise the company's potential. It is time to forget the sector's troubles and get in before it is too late. Buy.