Small is still beautiful for biotech companies coming to market

Celltech's recent setback has not cured firms' enthusiasm for public listings, reports Sameena Ahmad

A rising tide of young biotechnology companies is planning to float on the UK stock market over the next few years - undeterred by Celltech's shock revelation last week that its leading drug for septic shock works no better than a sugar pill.

The crash in Celltech's shares will undoubtedly affect investor sentiment, which is vital for stock market debutants. Patrick Rousseau, CEO of Thallia, a French health food company hoping for a $100m (pounds 61m) float says: "I have heard of six IPOs [initial public offerings] due this summer now delaying until the autumn after Celltech."

But behind these delays, a huge queue of hopefuls is building up. Michael Ward, editor of biotechnology newsletter BioBusiness, estimates there are 700 European bioscience companies looking to raise public money over the next decade. Of the UK companies seeking to float in London, three - Powderject, Ethical Holdings and Galen - announced valuation details before Celltech's bombshell.

Waiting in the wings are Oxford Glycosciences, which recently appointed James Noble, former finance director of British Biotech, to its board, chemical designer Oxford Asymmetry, Cambridge-based Cenes, gene-therapy group Therexsys and cancer specialist, Antisoma.

Even more are eyeing up the UK from the Continent. Jeremy Curnock Cook, head of Rothschild's biotechnology investment fund, sees enormous growth in biotechnology in Europe. "These companies are 10 years behind the US in commercialising their research, but are now ready to raise serious money." France dominates this list which includes Biocom, a computer software group; IDM, a gene-therapy company; Cerep, a chemical screening specialist; gene-delivery company, Transgene, and drug delivery group, Biovector Therapeutics. Coming from Germany are Morphosys, which has developed a peptide antibody library and IDEA, which hopes to list on AIM. Brussels is offering IBT, Spain, PharmaMar, which makes drugs from marine plants and from Australia the agricultural genetic engineer, ForBio, is looking for a secondary listing this year. Pharming, the Dutch company which was planning a London summer listing, may now delay until the autumn, say sources.

Mr Ward of BioBusiness also notes a new trend for US-listed biotechs to seek a secondary quotation on the less crowded European markets. "Some of these US companies don't get much exposure at home where there are 300 plus biotechs. The UK has just 20 or so. Also many have subsidiaries on the Continent and so it is natural to seek more investors there." Sugen, which has a German base and is 20 per cent owned by Zeneca, plans to float in London late summer while US compatriot, Verigen, which has a Danish subsidiary, will list on AIM.

How many of these hopefuls will actually make it? Though Celltech was a sharp reminder of the volatility of biotechnology shares, most believe prospects for the right sort of newcomer remain good long term.

One reason is a growing understanding that failures are meant to happen in drug research. David Horrobin, chief executive of Scotia, one of the UK's largest listed biotechs, says: "Most small molecules fail. For every 10,000 evaluated, only one makes it to market." John Padfield, chief executive of Chiroscience, points out that biotechnology companies are particularly exposed to good and bad news: "Biotechs walk around naked - everything we say or do is scrutinised. Drugs die all the time within the big pharmaceutical companies, but investors never know about it."

The complexity of biotechnology companies is partly to blame for the collective panic in share prices after bad news from one company. Robert Alington Maguire of Baring Brothers says: "It is precisely because pharmaceutical companies are very complex and very different that people tend to judge them as the same." The small size of the UK biotech market is also critical. Dr Horrobin says: "There is still a lack of qualified analysts and journalists here. If people don't understand the technology it is easy for them to become wildly enthusiastic or overly negative."

However, that is changing. As Mr Curnock Cook notes: "A bigger market attracts more money, institutions have to take a position and more analysts start to follow the sector seriously." This results in a keener ability to differentiate companies on quality. Louis Nisbet, chief executive of Xenova, the recently floated UK group, says: "Institutions are becoming very clued up and are starting to recruit medically qualified fund managers." The realisation that biotechs are worth a serious look is also being driven by the growing number of alliances with big pharma groups eager to find innovative new products.

In addition, as Mark Brewer, analyst at Hoare Govett, points out, not all biotechs carry equal risk: "Not every company develops drugs from scratch. There is plenty in this sector for investors with a lower appetite for risk." Of the imminent floats, Galen is a mini-pharma company profitable for 30 years. Powderject doesn't make drugs at all but develops devices to deliver them. None has plans to scale back their flotation valuations post Celltech.

Nor should investors forget the potential for biotechs to rise from the dead. Cantab's shares, which crashed to little over 100p in 1995 after a lead drug failed, now trade at 917.5p. British Biotech, which lost its first cancer drug batimastat, is now capitalised at almost pounds 1.7bn. As Dr Horrobin points out: "Anyone who invested in biotechs at flotation have done much better than if they'd put the money in big drug company shares. We are all pretty successful investments."

Start your day with The Independent, sign up for daily news emails
New Articles
tvDownton Abbey Christmas special
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
Arts and Entertainment
Jenna Coleman as Clara Oswald in the Doctor Who Christmas special
tvForget the rumours that Clara Oswald would be quitting the Tardis
Arts and Entertainment
Japanese artist Megumi Igarashi showing a small mascot shaped like a vagina
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Life and Style
Arts and Entertainment
Left to right: Stanley Tucci, Sophie Grabol and Christopher Eccleston in ‘Fortitude’
tvSo Sky Atlantic arrived in Iceland to film their new and supposedly snow-bound series 'Fortitude'...
Arts and Entertainment
The Queen delivers her Christmas message
newsTwitter reacts to Her Majesty's Christmas Message
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all