The Investment Column: Peptide

PEPTIDE Therapeutics was once worth pounds 264m but a mixture of disappointing trial results and the fall from grace of the biotechnology sector has seen its value tumble to pounds 35m. The shares briefly added 10 per cent yesterday, before closing almost unchanged at 45.5p, after Peptide revealed it was selling off its drug-discovery portfolio to venture capitalists to focus on vaccines.

Traditionally, the point of biotech companies was to discover new compounds whose development costs would be shared with a larger partner. But Peptide's research programme was seeing it burn more than pounds 1m a month and its poorly- rated shares prohibited it acquiring other drug development companies with products on the market already generating cashflow. Should investors feel disappointed to see Peptide's drug discovery arm part-given away to venture capitalists?

That depends. Stripping out the pounds 25m Peptide has in the bank, the market values Peptide's technology in both vaccines and drug discovery at a measly pounds 10m.

Peptide will retain a stake, as yet undisclosed, in the drug discovery business, without any obligation to fund it, in return for handing over the assets. So investors who believe the drug-discovery portfolio is valuable should buy the shares now. More sceptical investors can take comfort that the deal will mean Peptide's cash will last until its first product, ArilVax, a yellow-fever vaccine, hits the US market.

There are better reasons to buy into Peptide. Other rock-bottom biotech stocks, such as British Biotech, have recently enjoyed increases in their shares on the back of news of partnership deals and late-stage clinical trials news.

ArilVax phase III trial data is due by the end of the year; three other vaccines are in phase II trials at present; and a partner could soon be announced for Peptide's OraVax oral vaccine project. Betting on good newsflow is risky, but courageous investors should find Peptide attractive.

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