Investment Column: A reminder of the biotech risks

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If anybody was in any doubt that investing in biotech shares was as risky as roulette, yesterday's announcement from British Biotech was a timely reminder. Its share tumbled by 41p to 92p on news that the European launch of Zacutex, its treatment for acute pancreatitis, will be delayed for a year.

The news is hardly catastrophic for the group. After all Zacutex is far less important than marimastat, the potentially block-busting cancer drug, which British Biotech is pushing through clinical trials. And the delay in maketing Zacutex will knock just pounds 8m off analysts' profit forecasts for the year to April 1999, hardly enough to justify the pounds 270m drop in the value of the group yesterday.

But biotech stocks are ruled by sentiment. It is hard to believe that less than two years ago British Biotech was valued at more that pounds 2bn and vying for a place in the FTSE 100. Delays in product launches had a devastating effect on the share price, and the group is now valued at just pounds 607m.

Problems at British Biotech have had a huge knock-on effect. Zacutex would have been the first treatment produced by a biotech company to reach the market and start producing a profit. A successful launch would have buoyed the whole sector, but the delay is a bitter pill to swallow and caused biotech shares to tumble again.

That said, nothing has really changed. If marimastat gets through clinical trials it could generate sales of pounds 1bn; if it doesn't the shares will probably sink without trace. You pay your money and take your chance. As for the rest of the sector, delays in Zacutex should have no impact on other companies' earnings prospects.

It seems the only sensible way to approach biotech shares is to spread the risks by buying a basket of international stocks.