European biotech sector poised for stock market recovery, says report
European biotech companies' shares endured a "miserable" 2007 but the sector will see the beginnings of recovery this year as investor appetite for many bigger companies returns, according to US-based investment bank Piper Jaffray.
European biotech companies' shares endured a "miserable" 2007 but the sector will see the beginnings of recovery this year as investor appetite for many bigger companies returns, according to US-based investment bank Piper Jaffray.
The bank, which specialises in biotech research, advice and funding, said the popularity of the biotech sector is traditionally cyclical, in line with investor risk appetite, waning and waxing on a four-year cycle, but the attractions have been largely ignored by the professional investment community and valuations are currently low.
Based on that cycle time frame, "then 2008 should see the bottom for risk appetite and by inference for biotech (given that the last 'bottom' was in 2003)", the report said.
Senior researcher and the report's author Dr Sam Fazeli believes the improvement in the European biotech sector's performance will start in mid 2008 when investors can see beyond the sub-prime lending crisis and problems besetting the US. "Investors will then start looking ahead and start coming back to the sector." However, he said share prices would not double or triple overnight. "It will be a slow burn."
Top-tier biotechs are likely to be the first beneficiaries. "Unfortunately, apart from Shire, the UK does not have any biotech companies above a US$500m (Euro 338m) market cap. These are found in continental Europe: Actelion, ALK, Basilea, Crucell, Genmab, Intercell, Ipsen, NicOx, and Stallergenes, to name a few."
But Fazeli believes the outlook for a number of smaller biotechs looks promising, particularly for those companies with solid balance sheets or that have cash generative revenues. In the view of Piper Jaffray companies that fit this profile include Ablynx, Addex, Ark, Antisoma, Biocompatibles, BTG, Prostrakan, Protherics, Santhera and Vectura.
The report says 2007 was a miserable year for the European biotech sector and admits that its own predictions proved wide of the mark. "We had predicted that 2007 would be a year in which continental European biotechs would consolidate the gains of 2006; however, we had not anticipated that UK biotechs would put in such a dismal performance, given that they hadn't really performed in 2006 either."
He said the market overlooked the good news emerging from many biotechs in terms of positive data and licensing deals. It failed to distinguish between good and bad news not just in the UK, but also in much of continental Europe.