#######biotech bubble ###############

  1. 1,250 Posts.
    The announcement that Cantab Pharmaceuticals is in advance talks to buy Peptide Therapeutics demonstrates the potential tide of consolidation in the biotech sector. Such mergers and acquisitions will have a knock-on effect on the biotech investment environment. This is indicative of the advanced stage of maturity which the biotech sector is attaining. Whilst many investors tend to view biotech as a sort of 'dot com mark two' with genomics playing the role of internet, that is in fact an inversion of the truth as biotech has a far lengthier pedigree. There are positive similarities - both sectors have seen significant rises in share values, followed by dramatic slumps in the early part of this year. It can be argued that buying into both dot-com and biotech stocks could be viewed as an investment in loss-making concerns, where capital growth is achieved by assumption of future profitability. Both types of stocks are often valued on multiple projections of future profits. However, unlike dot-coms, biotechs are not a new concept. Many of them have a historically proven business model. The success rate of the product can be tangibly measured and indeed increases exponentially as the drug passes through rigorous testing in order to gain approval prior to market launch. As any product advances through the various test phases, the likelihood of it entering the market rise markedly. This firmer foundation compares favourably with the often untested dot-com model. It is worth noting that the media has over-concentrated on the genomic sphere following the recent news splash over the Human Genome Project. As a result of this attention, biotech share prices have fluctuated sharply. However, genomics is only a single part of a much larger sector. Biotechs themselves are now beginning to punch their weight with a number of drugs that have come though the biotech route reaching the market, most recently, Frovatriptan, Vernalis' migraine drug. Industry consolidation is likely to be an ongoing trend as big pharma seeks to fill gaps in their research pipeline and small biotechs club together to reduce the commercial risk of their operations and synergise their pipelines. Although given the risky nature of the sector and general absence of profit, it is tempting to think that the sector is still prone to the boom bust mentality ( and their has already been one spectacular slump in spring of this year ), ironically it may be the increasingly stodgy big pharma that will struggle to justify its rating from this point.

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