The Investment Column: BTG backs the right inventions

BTG is a modern-day gold-digger that has proved a rare find for investors. BTG, established by the Government to encourage the commercialisation of British inventions, has been one of the UK's most spectacular privatised MBOs. Floated at 225p in 1992, shares in the company soared to almost pounds 27 before a five-for-one stock split.

In the past year their value has risen from just over 420p to hit 790p at one stage. Not that BTG makes profits or pays anything more than a derisory dividend. Yesterday's results, which sent the shares 12.5p higher to 665p, showed net revenues for the half year to September down from pounds 7.6m to pounds 5.1m, pounds 4.2m of losses and increased cash outflow. However for once the City is not banking on the short term. Investors believe in BTG's potential.

BTG has the rights to more than 9,000 patented inventions. Rather than buying the intellectual property, it pays to help their creators establish patents and develop their ideas to the point of attracting licencees. For its investment, BTG earns the rights to milestone payments and royalties. Though headline revenues fell in the period as old products faded, the group's income from royalties grew, suggesting BTG is backing the right inventions. Sales of factor IX for haemophilia, for example, are already well above expectations and should boost second-half figures. Its Torotrak vehicle emission system could prove the big one.

There are concerns. It is in the hands of its licencees whose commitment to any product will vary. The company is also in danger of losing focus given the number of ideas that come before it. However, like a Hollywood film maker, one blockbuster could make its fortune. Given its high and growing level of up-front investment, BTG is unlikely to break even for at least four years and Kleinwort Benson forecasts pounds 7.5m losses in the full year. However sentiment remains on BTG's side. A long-term bet.