No real profits yet at ML Labs

The Investment Column

ML Laboratories provides support for that not-so-old adage that management knows best. When Kevin Leech, the venture capitalist who still owns around half of ML, sold 50,000 shares at 400p in January last year and made a staggering pounds 55m, he clearly had luck on his side. Since then the shares, up 0.5p at 158.5p yesterday, have been a dog.

Though valuing biotechnology groups is subjective, analysts reckon the price looks about right at the moment. That might look a surprising conclusion, glancing at ML's interim figures.

Turnover for the six months to March almost doubled to pounds 5.6m and the group reported a pre-tax profit of pounds 2.9m, several times the pounds 0.8m produced in the previous half. But as Stuart Sim, ML's newly elevated chief executive, rightly points out, the numbers are not quite as good as they look.

The profits are in fact access fees - payments made by partners Baxter and Medeva for the rights to ML products - plus a hefty pounds 1.5m from medical device group Bespak as part of a legal settlement. The cash is handy, but with around pounds 27m in the bank and with a cash "burn" of around pounds 5m a year, ML has plenty to keep it going.

Even so, as ML also acknowledges, royalty receipts are the real measure of the commercial success of the group's products and they will not add up to much for a few years. Hence the share price.

In the longer term, ML's products sound promising. ML says its kidney dialysis solution, Icodial, is kinder to the body than the traditional glucose solution and needs to be replaced less often. That Baxter, which has three-quarters of the dialysis solutions market, is its partner is a good sign. But until investors see sales turning into real profits, they should stay cautious.

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