The current bidding competition for Oxford Glycosciences by Cambridge Antibody Technology and Cell...
The current bidding competition for Oxford Glycosciences by Cambridge Antibody Technology and Celltech is the most recent sign that things are looking up for biotechnology.
Another came recently when I met a private client manager who wanted to discuss our fund because he had noticed that the Celltech share price had stopped going down.
The support for biotechnology by some investors has been a combination of the biotech indices not revisiting their lows of July 2002 in the US and October 2002 in the UK.
It also comes from the positive product, sales and profitability news coming from the sector and M&A activity. However, many individual biotech shares can be quite volatile and if the S&P 500 falls due to the outbreak of hostilities in the Middle East, shares in biotech companies will be at least similarly affected.
For the moment, biotechnology is being seen as a defensive sector without the thinning pipelines or patent expiries of the pharmaceutical sector.
Ironically, many of the ills of the pharmaceutical sector can be addressed by biotech and this was illustrated recently by the proposed acquisition of one of our top ten holdings, Scios, by Johnson & Johnson.
Both the components of the benchmark index of our fund, the 3i Bioscience Investment Trust, have risen since our year end of 30 September 2002. The FTSE Techmark Biotech Index has risen 8.67% from that date to 10 March while the Nasdaq Biotech Index was up 1.77% for the period. Both indices have, however, fallen from highs at the end of November.
One of the most visible signs that biotech will remain a relatively strong performer is the increasing number of profitable biotech companies. Many investors and investment professionals would assume that only the larger cap US biotech names, such as Amgen and Genentech, are profitable, but that is no longer the case.
What gives me confidence that the biotech sector is rapidly maturing is that it is not too difficult to find profitable biotech companies at about the $500m market cap level with annual sales in excess of $100m.
What is even more encouraging is that some of these profitable biotech companies are European, such as Celltech and Serono. Other companies that are likely to come onto investors' horizons this year are Gyrus, Acambis, Powderject and Actelion.
Investing in biotech companies may not be something that the generalist feels comfortable with. Added to this, many investors are now concluding that without the dust settling in the Middle East, now is not a good time for equities as an asset class.
I do however derive comfort from the fact that we last increased the holding of Amgen in our fund in summer 2002 at about $43 per share. Today, eight months later, it trades at about $56 per share. Biotech is here to stay.
Great long-term fundamentals.
Biotech addresses Pharma's pipeline gaps.
Increasing number of profitable biotechs.
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