Biotech now offers chance of great growth, says Commerzbank

"After a 15-year gestation, a beautiful bouncing biotech sector wasfinally born with all of its faculties in working order," according to a report from Commerzbank looking at the state of the biotechnology industry in the first nine months of 2001. However, the analysts note, since recent events in the USA and the accompanying slide in valuations, "investors must be wondering what sort of world it has been brought into."

Still, these factors are just teething problems, it is claimed, and have restored the sector "to something approaching a fair value." Indeed, the price paid for each percentage point of earnings growth at present is almost identical to the pharmaceutical sector, which the report notes is something of a first. It states that "recent deals have revealed exactly how desperate the pharmaceutical industry has become in its quest for growth."

Commerzbank states that the biotechnology industry is often seen as a research division of the pharmaceutical sector, but the former was paid very poorly for its services in the past. This, however, seems to have changed when one looks at deals such as Bristol-Myers Squibb's payment of $2 billion to acquire a 20% stake in ImClone Systems and get North American rights to the latter's IMC-C225 (cetuximab; Marketletter September 24). Another example proferred by the analysts is the European record set by Pharmacia's $280 million deal with Celltech for the tumor necrosis factor-alfa inhibitor CDP-870 for rheumatoid arthritis (Marketletter March 12).