Lex: Biotechnology
Published: January 6 2002 20:43 | Last Updated: January 6 2002 20:44
The market reaction to last week's news of cloned piglets and Dolly the cloned sheep's arthritis again highlights the risks, volatility and news-driven nature of the biotechnology sector. But there are signs that biotech is coming of age. After the frenzy of initial public offerings and soaring valuations driven by the race to map the human genome in 2000, a bumpy ride last year has left biotech companies on more realistic multiples. Several factors could spark investors' interest.
One is consolidation, after December's Amgen/Immunex, Millennium/ Cor and MedImmune/Aviron deals. The need to augment product pipelines, reduce the inefficiencies of multiple corporate overheads, and increase liquidity to attract big investors may drive further merger and acquisition activity. Amgen/Immunex, in particular, shows biotech companies starting to act more like the big pharmaceuticals companies, by buying in growth products. It creates a group, at $75bn, starting to approach "big pharma" in size.
The balance of power between biotech and big pharma seems to be shifting. What biotech has, and pharma lacks, is lots of late-stage products - an unprecedented number should hit the market this year. The big drugs groups' desperation to get hold of such products is shown by the previously unheard-of sums now being offered in licensing deals. The IPO boom of 2000, and continued inflow of private capital last year, has left most biotech companies well-financed. And the development of specialist biotech funds and departure of retail investors have given them a more stable investor base. The lessons of the technology bubble have left investors favouring stocks with real revenues or earnings (or at least with revenue-generating products close to launch) over pure technology platform companies. Those seen as likely buyers or targets in M&A deals could attract attention.
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