Hi Rod,
Cop this ! Lifted from UK Invest.
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SkyePharma's not so blue
December 14, 1999
By Simon Hamer, UK-iNvest.com
In light of the hubris surrounding Internet shares, the recent share price movement of biotech firm SkyePharma provides a salutary lesson for investors in small firms with undoubted
potential but no profit.
SkyePharma develops new forms of existing drugs to extend their product life. Its share price has yo-yoed since it made its debut on the stock exchange in 1997, as one story reports on
its massive potential while another talks of the high risks involved.
At present, the shares are in the doldrums, hit by a severe bout of the blues over rumours of problems with the marketing of its anti-depressant Paxil CR, which it has jointly developed
with SmithKline Beecham (SB.). (The drug is a development of SmithKline's Paxil, the sixth-best-selling drug in the world.)
But analysts insist the fundamentals have not changed and a steady stream of good news will help the share price bounce back in 2000.
?I like the stock because it has built up an outstanding portfolio of delivery technologies and blue chip client relationships,? says James Culverwell, who covers the stock for Merrill
Lynch. In other words, value has gone up while the price has gone down.
If no news send rumours
Skyepharma's recent volatility -- the share price went from 47p to 63p in the first two weeks of November but is now back at 46.25p -- shows how difficult it is for small investors to
analyse biotech companies.
The rise in price was triggered by Chairman Ian Gowrie-Smith's appearance on Channel 4's Show me the money, when turnover spiked to 12.4m, compared to a daily average of around
2m.
The fall was triggered by persistent rumours that the company was experiencing problems with Paxil CR. ?The [main] risk is that, for reasons best known to themselves, SmithKline may
chose not to launch it,? says Culverwell.
?It would be a severe blow for SkyePharma if SmithKline decided not to launch the drug,? says Mike King, an analyst at SG Securities.
Out of our hands
Companies such as SkyePharma are essentially trading on newsflow rather than fundamentals. CEO Michael Ashton concedes the company can't always control this.
In the case of Paxil CR, Ashton does not know precisely what is going on. ?I do not blame (SmithKline) for not telling us. Paxil is a $6bn plus market and one of the world's top ten selling
drugs and they do not want to give their competitors any advantage by releasing information that might help competitors,? Ashton says.
Has SkyePharma been breaking stock exchange rule? The London Stock Exchange's Disclosure of Price Sensitive Information regulations says: ?Listed companies must notify the
Company Announcements Office of any major developments that are not public knowledge and which may be price sensitive without delay.?
As with all legal documents, the problem comes in small print, in this case the definition of major. ?Any investor looking at a company like SkyePharma has to accept they are in for a
rocky ride,? says Andrew Mugridge, an analyst at Nelson Fund Management.
?It is a lesson that I think Internet investors may soon have to learn, namely that there can't always be good news.?
Don't abandon hope
Ashton is expecting a steady flow of positive news over the next 12 months, with several new drugs due to hit the market, including lymphoid meningitis treatment Depcyte which is an
?orphan drug? in that it will have no competition for at least seven years.
?The stock is at the interim phase where a lot of deals and development activity has yet to translate into tangible reported revenues. This is about to come and underpins the timing and
cause of our [continuing] positive recommendation,? Culverwell says.
All small biopharmaceutical companies carry risk, and SkyePharma is no exception. At the share's current level the risks are well discounted so downside activity is (probably) limited.
SkyePharma is still worth a punt, but don't put next month's mortgage payment into the stock.
Simon Hamer is a staff writer at UK-iNvest.com |
