Outlook: Biotechnology

ALL OTHER industries are busy consolidating, so why not biotechnology too? On cue, two of the biotech babes, Celltech and Chiroscience, have announced a merger (in effect a takeover by Celltech of its slightly smaller rival), and the City is predicting a lot more to come.

The distinguishing feature of a biotechnology company, as opposed to one of the pharmaceutical giants, is that they are meant to be entrepreneurially led, fleet of foot and confined to the business of drug discovery - costly development, trials and marketing is left largely to the big boys.

One by one, these attributes are being abandoned. The entrepreneurs who founded the biotechs are being thrown overboard, dismissed as "boffins" or worse, ill equipped for the rigours of running a "real" business. Some, most notably British Biotech, have even attempted to make the jump to fully fledged pharmaceutical stock. Before its fall, British Biotech was moving into undertaking its own latter stage clinical trials and had ambitious plans for developing a proprietary marketing network.

Now the sector is catching the consolidation bug too. A recent survey of European biotechnology companies found that a third planned to merge or make an acquisition over the next two years. Does this not rather undermine the raison d'etre of these prospectors of chemical compounds? The potential for cost cutting - the rationale for most big mergers - is presumably limited, while by stifling creativity in size, there is a real danger that mergers will destroy entrepreneurialism.

By combining their science bases, Celltech and Chiroscience hope to increase their chance of breakthrough drug discovery as well as limit the downside of product failures. But this is about the most that can be said for the process. Still, a trend is a trend and investment bankers are already matchmaking with a vengeance. Will British Biotech end up as predator or prey? Its size and cash ought to ensure it is the former, but it is still too weakened by Millargate to guarantee it.

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