Scandinavian Biotech Sector Still New, But Promising
By MYRIAM NOISETTE
Of DOW JONES NEWSWIRES
COPENHAGEN -- Stock-picking in Scandinavia's young and volatile biotech sector can take nerves of steel and the patience of Job, but a large percentage of Europe's biotech companies are cropping up in the region and shouldn't be overlooked.
Scandinavia's biotech sector lags about five to 10 years behind the most evolved areas in the U.S., said Leif Helth Jensen, who manages Danske Private Equity's Life Science fund. Even so, about 22% of Europe's biotech companies are in the region's "Medicon Valley," the area around the Danish capital Copenhagen and its Swedish sister city, Malmoe.
With such potential, fund managers hope to identify the most promising companies at an early stage. In addition to experts who evaluate business plans, the fund managers also include a few scientists in their teams to take a close look at the viability of the projects.
That makes the companies that fund managers invest in quite diverse, both in terms of the products they are researching and the state of their balance sheets. Because the sector is so volatile, a number of them are good buys at the moment, fund managers say.
Two names that come up often are Sweden's Vitrolife AB (S.VIT) and Norway's PhotoCure ASA (Y.PHO). Unlike others, both companies actually have products on the market, though they have yet to make a profit. Vitrolife's share is down around 22% from its first day of trading on June 26 last year. It was trading around SEK28 Monday, up 1.1% from Friday.
The positive news for investors is that Vitrolife just might see earnings in the black in 2002 after last year's launch of the first method for in vitro fertilization that doesn't contain blood-extracted products, which makes the process less risky for patients, said Magnus Corfitzen, a fund manager for Danske Capital in Copenhagen.
"They have a very high quality, very clean product that should do well," he said.
PhotoCure has products to treat skin cancer and pre-cancerous skin lesions that are currently approved for marketing in Sweden, while the company has filed for approval in other European Union countries and the U.S. It also has a product for bladder cancer detection in phase III clinical trials, just prior to filing for approval.
PhotoCure's share has gained nearly 27% from a year ago and fund managers say that still isn't overpriced. The share was down NOK3, or 2.6%, at NOK114 Monday afternoon.
Denmark's Pharmexa A/S (K.PHX) generates most of its revenue from research funding rather than sales but it has a number of interesting partners, including Schering-Plough Corp. (SGP) and Lexigen Pharmaceuticals Corp., a division of Merck KGaA (G.MRK), making it a favorite pick.
Pharmexa is one share that fund managers say is probably very cheap right now, trading down 36% from a year ago at around DKK125. The company is developing therapeutic vaccines for a number of diseases. Research into a breast cancer vaccine is the most advanced of its projects, with the company expecting to announce preliminary data from phase I/II trials during 2002. It is also working on an asthma vaccine and an osteoporosis vaccine.
Fund managers say Denmark's NeuroSearch A/S (K.NOS) is a chancier pick as the company is developing drug candidates for the treatment of diseases of the central nervous system, an area of research seen as more uncertain. NeuroSearch is off about 35% from last year, currently at DKK178.
NeuroSearch's most advanced project is a drug candidate for the treatment of Alzheimer's disease. The company announced in June 2001 that it planned to develop the product all the way to Phase III without a partner and that these trials should start in the third quarter of 2002.
The company's share, however, took a beating when Phase II studies for a depression drug candidate it is developing in collaboration with GlaxoSmithKline PLC (GSK) were suspended in August 2000 due to safety concerns.
While Danske Capital includes NeuroSearch in its Biotech Opportunities fund, Michael Kallestrup Reeslev, who manages Jyske Invest's BiotechMedicinal fund, says he still finds the company too risky even as a long-term investment.
As with the overall biotech sector, where products can take 10 to 15 years of development before revenues come in, investors should be prepared for a long-term horizon - around seven years, says Edward Wawrzynczak, senior portfolio manager for BankInvest's Bioteknologi Fund. Investors can expect a high return in the long run but big swings on the way, he says.
For exposure to such companies with more risk diversification, Scandinavia has a handful of biotech funds that are globally invested, including in U.S. stocks. Fund managers say the danger of investing solely in Scandinavian stock is the relative immaturity of the sector over the U.S.
"The fundamentals in Scandinavia are good but the U.S. biotech sector got its start in the 1970s and drug development is a lengthy process," said Danske Capital's Corfitzen.
Corfitzen manages three funds for Danske Capital worth a total of about DKK477 million. The Bioteknologi fund fell 27% in 2001, even though it also holds more stable pharmaceutical companies. Bad timing was the main reason, said Corfitzen.
Biotech Opportunities, which invests in biotech companies as well as producers of medical and generic products, shed just under 17% last year but was still the best performer of the Danish biotech funds, he said. Biotech Genomics, which is dedicated to companies developing products based on research into the human genome, lost a full 25% in 2001.
The funds all use different benchmarking methods, some against other large international biotech funds, and others a combination of indexes, so it's hard to compare them.
Company Web sites: www.bankinvest.com, www.danskeinvestcorporate.dk, www.jyskeinvest.dk, www.danskeprivateequity.com, www.vitrolife.com, www.pharmexa.com, www.neurosearch.dk, www.photocure.no |
