The Investment column: BTG's share price puts too much store by varicose veins treatment

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The Independent Online
BTG, THE intellectual property company, has something to set your pulse racing - a treatment for varicose veins which could bring sales of pounds 250m a year. Unfortunately, the first such year is 2006 and for now BTG's 8,000 patents - including, controversially, a patented gene - continue to generate losses.

Those losses narrowed markedly in the half year, from pounds 6.6m to just pounds 680,000. Even so, Ian Harvey, BTG's chief executive, is warning BTG will not necessarily break even in the full year, or even next year. Much depends on the timing of milestone payments and the exercise of options by third parties, he says.

In the period, milestone payments for Campath, a leukaemia treatment, and a sharp increase in revenues from BeneFIX, the patented gene technology that treats haemophilia, lifted revenues from technologies acquired since BTG listed in 1995.

The onset of significant and stable royalties from these licences means BTG can no longer complain that its 400-odd technologies make it misunderstood and undervalued. Campath, which has received fast-track approval in the US, is set for launch in 2000, with revenues following six months later. Royalties from BeneFIX are to expected to climb to pounds 19m in 2003, and reach pounds 88m by 2006.

BTG also sees scope for developing non-core electronics technologies owned by Lucent, the US technology giant, following its acquisition of parts of the company's smartcard portfolio.

Near-term, however, Varisolve, which treats varicose veins without the need to strip them out, will soak up cash during its development. Mr Harvey is so enthusiastic about Varisolve that he has established a wholly owned subsidiary to develop it - BTG previously licensed out its technology, or, occasionally, set up venture capital funded start-ups.

Meanwhile, BTG is surveying the globe for the next Varisolve, though progress is slow. The group typically rejects 80 per cent of the 400 inventions put to it annually. But in the half year it reviewed 400 and rejected 95 per cent.

Analysts forecast a pounds 3.23m loss for the full year and pre-tax profits of pounds 0.7m in 2001, rising to pounds 10m and earnings of 10.4p per share in 2003. The rush into technology stocks, aided by the launch of the techMARK index, has seen BTG's shares soar 80 per cent in the past month to 610p, or 55 times 2003 earnings.

Hopes for Varisolve explain the racy rating, but the commercialisation of the treatment is many years away and, at these heady levels, investors should take profits.