City scrambles for the next Glaxo

TOM STEVENSON

British Biotech is the sort of company that gets the stock market its reputation for being little more than a casino. Its shares were worth just over pounds 10 on Wednesday night, pounds 15.50 by the close of trading on Thursday and pounds 16.75 yesterday after touching pounds 20.

A trade was reported at pounds 25 at one point during the frenzy as investors scrambled to jump on the bandwagon - six times as much as the shares sold for at the beginning of the year.

The question exercising everyone's mind in the City was whether this was the next Glaxo, once a tiny research outfit and now Britain's biggest company, or just another flash in the pan, hyped by spivvy share dealers to make a profitable turn at someone else's expense.

On the face of it, nothing had really changed at the company except that it had announced some relatively promising results from tests on cancer patients of a new drug called Marimastat. There was also the prospect of further results this weekend from tests on another drug, codenamed BB-10010, which prevents damage to the immune system during chemotherapy.

How then could the business be worth pounds 500m one day and pounds 750m the next? At the beginning of the year the market had assigned a value of only about pounds 200m to exactly the same company. The reason is that the City is ill-equipped to value businesses like British Biotech which have never made a profit - Thursday's comments on the progress of the Marimastat tests accompanied a loss for the first half of the year of over pounds 10m. When it comes to the flourishing biotechnology sector it is all about hope - the ultimate in what professional fund managers call blue sky investment.

Founded in 1986 when British Biotech's chief executive and chairman were made redundant from top research posts at a US drugs firm, Searle, the company gained a stockmarket quotation in 1992, riding a wave of interest in the sector, one of the few commercial areas in which Britain excels.

It is Britain's biggest biotechnology company, and as such the market's biggest hope in its quest for the next Glaxo, the hugely successful drugs company that hit the headlines earlier this year when it took over Wellcome for a record pounds 9bn.

Glaxo brought enormous financial gains to shareholders who backed it 15 years ago before the launch of its blockbuster ulcer treatment, Zantac. Since the beginning of the 1980s the value of the company has soared a staggering 64 times so that it is now Britain's largest company by a wide margin, worth more than pounds 30bn.

A relatively recent phenomenon in the UK, the market's enthusiasm for the biotechnology sector has a long tradition in the US where the largest company Amgen was a 1980s start-up operation and is now valued at more than $8bn (pounds 5bn). For investors who pick the right stock the rewards can be almost limitless.

But British Biotech is also proof positive that when a company's shares are hyped so strongly in the City, the fall can be every bit as painful as the rise was exhilarating.

Back in February, the company warned that tests on another cancer treatment, Batimastat, had been delayed and the market responded savagely, wiping away a quarter of the company's value in a single day.

Business Comment, page 21