[PWJPF] POWDERJECT PHARMACEU FOREIGN - UK*
Value to be found in the chaos
Biotechs set to benefit from rise in bio-terrorist threat
By Saskia Wirth, FTMarketWatch.com
Last Update: 11:23 AM ET Oct 3, 2001
LONDON (FTMW) - Sometimes even the bleakest circumstances can pay off for the alert investor.
The renewed threat of bio-terrorism and biological warfare in the aftermath of the U.S. terror attacks of September 11 might actually benefit a few biotech companies, Investment bank Friedman Billings Ramsey (FBR) said in a report published this week. It points to a number of attractive investment opportunities in the European sector.
"The threat of terrorist groups using biological weapons has prompted governments to look to biotech companies to come up with ways to protect both military and civilian populations," FBR said.
Good news for Acambis
'The threat of biological weapons has prompted governments to look to biotech companies.'
An obvious example is UK biopharmaceutical company Acambis (ACM) , which specialises in the development of vaccines.
In September 2000, the company won a 20-year contract with the U.S. government to develop and manufacture a smallpox vaccine to counter the threat of biological warfare and bio-terrorism.
Acambis estimates the contract is worth up to $343 million. The project is fully funded by the U.S. Centers for Disease Control and Prevention and Phase I trials are expected to being in early 2002.
Nor surprisingly, shares have climbed around 30 percent since the attacks on the World Trade Center and the Pentagon.
FBR said the contract is good news for the company, providing it with a sustainable revenue stream to fund its operations. Acambis said last month it had cash and liquid resources of £19.7 million. See Acambis reports narrowing losses
Credit Suisse First Boston also highlights the company's second guaranteed source of income, its manufacturing deal with Baxter (BAX) . "Even if the economic downturn is longer than is currently expected, the significant cash flows will mean Acambis will remain in a strong financial position," the investment bank said.
Virus alert
Another development that is guaranteed to benefit a number of biotech firms is the re-emergence of many infectious diseases - partly because of steadily increasing tourism and migration - which has taken many pharmaceutical firms by surprise, FBR said.
'Infectious diseases are back, creating an interesting business opportunity for biotech firms.'
Emerging diseases such as HIV and Creutzfeldt-Jacob as well as the renewed occurrence of older foes such as cholera and tuberculosis in many parts of the world cost the lives of millions of people each year.
This represents an opportunity for companies specialising in drugs and vaccines for these conditions, addressing a $37 billion market. "Infectious diseases are back," FBR said. "This creates an interesting business opportunity for biotech companies with their strong biological know how to provide new weapons against the growing threat."
Many of the bigger pharmaceutical firms are ill-equipped to meet the challenge. "After putting anti-infectives R&D below apparently more lucrative markets such as CNS and cancer, big pharma companies are now having to look to biotech companies to fill their R&D pipelines," FBR said.
The investment bank added that nearly half of the compounds currently in the R&D pipelines of big pharma can be traced back to a biotech company.
PowderJect
Another company to keep an eye on is the British vaccine group PowderJect (PJP) , best known for its needle-free technology of powder injections, which focuses on flu, tuberculosis, TB, yellow fever and cholera treatments.
Vaccines is currently the fastest growing field among anti-infectives and expected to be a major driver of growth in the years ahead, FBR said. The vaccine market totalled $2.97 billion in 2000.
The British Department of Health has chosen PowderJect as the sole supplier of BCG tuberculosis vaccines. See also PowderJect expects 40% sales growth
"The group is well placed to recover," Goldman Sachs said. "As a lower risk biotech play, but with upside potential, the shares are attractive at current levels." The investment bank points out, however, that PowderJect's management still has to restore investors' confidence after the recent switch to a pure vaccine player. See also PowderJect buys Swedish vaccine group
Buying opportunity?
Market observers have been fairly upbeat on the biotech sector over the past few weeks. CSFB, for example, said the current climate of uncertainty presents a genuine chance for investors to find some value among biotech stocks and that the likes of Shire (SHP) and Oxford GlycoSciences (OGS) could deliver significant returns. See Analysts say now's the time to buy biotech
"Even in a harsher macro environment, fundamentals will prevail, which leaves biotechs geared towards recovery."
Goldman Sachs points out that the fundamentals of the sector have improved considerably and that biotechs are relatively immune from recent events.
"Even in a harsher macro environment, fundamentals will prevail, which leaves biotechs geared towards recovery," it said in a recent research note, putting Celltech (CCH) , Crucell (35856) and Serono (SRA) on its "recommended list".
Goldman said European biotech companies now have an average of three years of cash, more than enough to weather the current difficult funding environment.
Investors should nonetheless keep in mind that many biotechs have to be looked at as a long-term investment. "While investors may not have the appetite for biotech risk currently, they should have the sector high on their watch lists," Goldman added.
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