LONDON _ If you pick the right companies, "now is a good timeto invest in British biotechnology." So said Keith McCullagh, CEOof British Biotechnology plc, of Oxford, England.

But he went on to warn against investing in a basket of biotechcompanies because this "denies you the chance of picking a bigwinner."

In addressing the first biotechnology conference organized by theFinancial Times on Tuesday, McCullagh said the U.K.'s biotechsector may be Europe's most successful, but it still has a long way togo to catch up with the U.S. He pointed to Amgen Inc., of ThousandOaks, Calif., and South San Francisco-based Genentech Inc. asexamples in which increases in the value of companies in the U.S.came before the introduction of lead products. "The important lessonto be learned from this," said McCullagh, "is not that U.K.companies are inferior, but that if their product developmentprograms are successful, similar share price escalation is possible."

McCullagh used his own company as an example. Shareholders missthe point, he insists, if they sell shares now because they have seenan increase of nearly 50 percent since they were floated and want torealize the profits of the past few months. "If we succeed," saidMcCullagh, "the multiplier may be three or four, may be even 10 or15 times the current price level. We are building another Amgen," hewent on, "or maybe another Glaxo Holdings plc [of London]. It is anextraordinarily ambitious goal."

McCullagh was not pitching sales for his company so much as thesector as a whole. But in the U.K. and Europe, he said, the biotechindustry faces a number of challenges, not the least being publicperception. McCullagh, who is also chairman of the U.K.BioIndustry Association in London, complained that "most membersof the non-scientific public think that messing about with DNA,particularly human DNA, is dangerous. The fact that manymolecular biologists and other experts do not share this simple viewdoes not have much impact on the public since many people assumethat scientists cannot be trusted."

One solution to the perception problem would be better education,said McCullagh. "Bioscience should be a mandatory part of everychild's school curriculum." He also called for the British governmentto give better support to biotechnology. "If Britain is to becompetitive in the new millennium it is essential that the countryconsistently supports an active science base and encourages wealthcreation from the application of science in industry."

McCullagh also said that the investment community needs to bebetter informed. There is a misperception about biotech companiesamong investors and the public. "I suspect that many regard themwith either disbelief or cynicism. They ask how a companyreporting, and projecting, increasing losses can be a goodinvestment."

Part of the problem, McCullagh said, is that performance is notuniform across the sector and investors are leery. "This is nodifferent from any industrial sector," McCullagh told the conference."It is therefore simply absurd to suggest that it is good investmentstrategy to purchase shares in a basket of biotech companies withoutindividual company judgment."

Deciding Which Card To Play

McCullagh suggested that "the essence of estimating value andpredicting the performance of biotechnology companies is tounderstand the products under development and their potential orlikely markets." This is a specialized task, he added, "so many fundmanagers assume that it cannot be done." But the same fundmanagers, he said, "rely on expert analysts to help them assessestablished pharmaceutical companies or computer andtelecommunications businesses."

There are hopeful signs, McCullagh said. "Over the past year analystcoverage of the U.K. biotech sector has expanded considerably. Ifthis trend continues, investor and public confidence in thebiotechnology industry is likely to grow."

While better informed public and investors will help, in McCullagh'sview "the single event which could do more on its own than anyother factor to encourage investment, entrepreneurship andconfidence in the U.K. biotech industry would be the successfullaunch of a major product by a U.K. biotechnology firm. If thatproduct achieves substantial revenues," he said, "and the companygenerates significant and growing profits, the excitement in thesector will be hard to contain." n

-- Michael Kenward Special To BioWorld Today

(c) 1997 American Health Consultants. All rights reserved.

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