Sorry if this was posted earlier. From FTmw:
ftmarketwatch.com{69DA00CA-A68A-42F3-9F15-235684A4587F}
Biotech seeks return to rude health
Leading fund in buying spree, but confidence is required
By Steve Johnson, FTMarketWatch 10:50:00 AM BST Aug 24, 2001
LONDON (FTMW) - When the dotcom revolution came to a grinding halt, many voices suggested that biotechnology would be the next big thing.
As excitement over the potential medical benefits of the human genome project reached fever pitch, so did share prices.
Finsbury Life Sciences [UK:FLS] and the Finsbury Worldwide Pharmaceutical Trust [UK:FWP], two of the three publicly-quoted biotech funds available two years ago, posted returns of 205.3 percent and 190.3 percent respectively between August 1999 and August 2000.
The other, the International Biotechnology Trust [UK:IBT], returned a staggering 497 percent in this 12-month period.
However, in November 2000 the bubble burst and biotech followed the path scorched by the wider TMT universe and crashed back to earth.
International Biotech has lost 39.7 percent in the last year, Finsbury Life has fallen by 35.4 percent, and 3i Biosciences [UK:TBS], a newcomer, has fallen by 40.4 percent. Only the Finsbury Worldwide fund has kept its head above water, gaining a further 5.1 percent.
Coming out fighting
Kate Bingham, manager of International Biotech, has come out fighting in recent weeks, though.
So far this month, Bingham has invested £5.3 million in the newly merged operations of Microcide Pharmaceuticals [US:MCDE] and Althexis; sunk £3.5 million into privately held EyeTech Pharmaceuticals; and pumped a further £3.5 million into Discovery Therapeutics, another private U.S. outfit.
On Friday she invested a further £1.4 million in Aradigm Corporation [US:ARDM], which is developing aerosol-based drug delivery alternatives to traditional injections.
Bingham likens this buying spree to waiting for a bus ("they all come along at the same time"). Nevertheless, she says she is "pretty excited about the sector" and is upbeat for its prospects.
"The market got overheated last year. The sequencing of the human genome led people to believe there would be a silver bullet cure for everything, but it was just a template from which to work.
"Historically it is a very volatile market, it gets hyped up quite easily. And an awful lot of companies came to the market and used up all the potential supply of capital there was.
"But it is a pretty mature industry, it is robust against economic cycles, it is string and will remain strong.
"Next year it will start ticking up again. Historically, once you have had a big over-hyping of the market it always takes time to recover. But it has been a wonderful play for long-term investors."
Top picks
Despite the rash of purchases of private stock, some three-quarters of International Biotech's portfolio is in publicly quoted stocks. Some of Bingham's favourite plays are:
Corvas International [US:CVAS], the largest shareholding at 8.6 percent of the portfolio. Its shares plummeted in July when the U.S. Food and Drug Administration asked for further testing of RNAPc2, used for the prevention of deep vein thrombosis and pulmonary embolism. "The product is being delayed because of the clinical trial design, rather than any issues of safety," says Bingham. "It is undervalued."
OSI Pharmaceuticals [US:OSIP], which specialises in cancer treatments. "It has a broad platform for oncology," she says.
AnorMED [CA:AOM], a Canadian company which researches and licenses metal-based therapeutic products. It has an attractive pipeline, with its latest product licensed to Shire Pharmaceuticals [UK:SHP].
Onyx Pharmaceuticals [US:ONXX], which specialises in anti-cancer treatments.
Targeted Genetics [US:TGEN], a Seattle gene therapy company that is claiming "promising" results from pre-clinical studies into a form of vaccination against Aids.
More than 60 percent of these quoted stocks are from the U.S., with the UK and Ireland accounting for 13 percent and the rest being in continental Europe and Canada.
Set to float?
As for the unquoted buys, Bingham says the EyeTech, which is tackling age-related degeneration that leads to blindness, would probably have been floated already if the markets had been more receptive.
Discovery Therapeutics, which is working on treatments for cardiac and renal diseases, as well as Parkinson's disease, is "a strong candidate for a public offering".
In choosing these stocks, Bingham and her 18-strong team first look for quality management, with a background and track record of building successful companies.
The products or techniques it is developing are obviously important, but it is vital that the company has the intellectual property rights to these elements. The costs and risks of clinical trials also need to be factored in.
Finally, the team will look at how well the company is funded, and determine whether it has a "nice clear defined end point" where the money starts rolling in.
Bingham admits that a recent U.S. ruling limiting the scope of stem cell research is "not too helpful" for the biotech sector. But she does not fear that the animal rights campaigners who have crippled Huntingdon Life Sciences [UK:HTD] will cause wide scale difficulties for the industry.
Biotech boffins
Bingham's company, Schroder Ventures Life Sciences (SVLS), took over the management of International Biotech from Rothschild Asset Management in November 2000.
SVLS is the specialist arm of Schroder Ventures, which has been investing in life sciences companies since 1981, and established Shire Pharmaceuticals back in 1987.
SVLS's roots are anchored in private equity, and it aims to invest for the long run and help companies grow, often with its own representatives on their boards.
Bingham herself has an Oxbridge biochemistry degree and has sat on the board of seven companies.
Rival offerings
All of the rival investment trusts available in the UK have at least a splattering of mature, household biotech names in their portfolio, which International Biotech steers clear of.
Finsbury Life, a predominantly European fund, holds Shire and Cambridge Antibody [UK:CAT], Finsbury Worldwide is big on Pfizer [US:PFE] and Novartis [DE:904278] [US:NVSVF], while 3i Biosciences, which also includes healthcare, likes Oxford Glycosciences [UK:OGS] and Cantab Pharmaceuticals [UK:CTB].
Ben Yearsley, investment manager at Hargreaves Lansdown, says interest in biotech funds has fallen since the shares started their downward journey.
He adds: "Biotech is still a good place to invest, as long as you are doing so for the long-term. It will come back round again.
"But if there are private holdings in a fund that makes it harder to value and increases the risk as well, potentially, as the rewards. I would recommend only putting 10-15 percent of your portfolio into specialist areas in total."
The potential risks are certainly borne out by the figures. International Biotech has a three-year standard deviation (a measure of volatility) of 27.6 percent, compared to 4.4 percent for the FTSE 100 as a whole. The three other funds, concentrating as they do on generally larger stocks, have deviations of 11-17 percent. |
