Scotia's hopes for magic bullet

The Investment Column
Scotia, the biotechnology group, has proved even more of an enigma to the stock market than the rest of a sector already prone to sudden shifts in sentiment. With off-beat products based on lipids, the fatty molecules that make up the membrane of cells, and a factory at Callanish in Lewis, better known for its standing stones than its drugs, it is perhaps hardly surprising that Scotia has been hard to value.

Yesterday, the group was claiming that its pancreatic cancer drug, codenamed EF13, would soon outshine even Marimastat, the British Biotech anti-cancer treatment that set the sector alight last November. David Horrobin, the driving force behind Scotia, suggested EF13 could be cleared for sale in under two years and might cover a wider range of cancers. But those claims pale beside the qualities attributed to Foscan, its "magic bullet" drug which destroys cancerous cells in association with lasers. Mr Horrobin believes this could be "possibly one of the most exciting drugs, not just for Scotia but for the whole pharmaceutical industry over the next few years".

Even so, the City will remain sceptical about both drugs until more solid phase III trial results emerge and there are question marks aplenty elsewhere. Some seven months after Pharmacia & Upjohn pulled out, the group still has to find a partner to distribute Tarabetic, the diabetic treatment which should be Scotia's first major drug to hit the market early next year.

Meantime, its long-standing businesses selling treatments based on evening primrose oil and lipid technology are struggling, as the 12 per cent dip in first-half turnover shows. Losses deepened by 31 per cent to pounds 7.03m in the six months to June. At the current rate of burn, Scotia's net cash of pounds 39.3m will be used up in about 18 months.

Even after yesterday's 42p fall to 691.5p, the shares, which capitalise Scotia at pounds 532m, look high enough for now.

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