For Biotech fans

The recent stock market sell-off has left the shares in several UK biotech companies looking highly attractive simply because the stocks have been marked down to such an extent that there is little value left for the company's products, technologies, collaborations or tax losses after subtracting their cash.

The sharp falls across the sector in recent weeks have reduced the so-called technology values, found by subtracting cash from market capitalisations, to extremely low levels. Moreover, companies that raised the most money in the past year have often seen the largest falls in technology values, in many cases to levels not seen at any time in the last year.

Investors looking for value in the sector should therefore compare the technology value with the potential of products in research and development in order to identify the market's pricing anomalies.

One company that investors have already targeted is Oxford GlycoSciences, which has seen its shares rise sharply from just under 900p to 1,175p in the past two days. Its current capitalisation is £622m and since OGS has £204m of cash, the market is valuing its technology at £418m. So for a 30% rise in the shares, the technology value has grown by 50% in the past two days.

Investors were probably judging that the technology value implied by the OGS share price could be largely asribed to its lead product Vevesca, without even considering the revenue-generating possibilities of its other R&D activities.

Vevesca is at an advanced stage of development for Gaucher disease, a rare inherited disorder, and has sales potential of up to $250m per year. The drug's potential "value" is roughly double its peak sales figure, a multiple established by recent divestments transactions between pharmaceutical majors, and it should not even need to be discounted much since the development risk is low.

In addition to Vevesca, OGS has a world-leading proteomics programme which has generated patent applications for more than 1,500 disease-associated proteins involved in breast, prostate and liver cancers, Alzheimer’s disease, neurological disorders and rheumatoid arthritis. It also has proteomics research collaborations with pharmaceutical companies such as Bayer, GlaxoSmithKline and Pfizer; technology development alliances with Applera, Cambridge Antibody Technology and Packard BioScience; and a separate drug development partnership with Medarex.

Several other companies including XTL Biopharmaceticals, Xenova, Protherics, Cantab and Pharmagene also seem to have extremely low technology valuations, in many cases of between £10m and £30m.

XTL, an Israeli biotech firm, has some £55m in cash but its depressed share price gives it a technology value of just £16m, a fraction of the potential value of its lead development product XTL-001, without even considering its other technology.

XTL-001 is poised to start Phase II trials for hepatitis B in combination with GlaxoSmithKline’s Zeffix, mirroring the combination therapy approach already used in treating hepatitis C. In addition, XTL has a unique technique for introducing functioning human tissue into mice, which can be used to generate fully human monoclonal antibodies and also to validate targets for pharmaceutical development.

Xenova has a technology value of £27m and Cantab, with which it is merging, some £20m - again a fraction of the potential of its R&D pipeline. Xenova's lead compound XR9576, which is about to enter Phase III studies, could potentially be used with a range of anticancer products to prevent the development of resistance. It has a sales potential of at least $500m per year.

The merger will also create a well financed company with R&D across a broader range of activities. The combined technology value of a merged Xenova/Cantab is still only equivalent to that of Protherics.

At £13m, Pharmagene has the lowest technology value in the UK sector, which hardly does justice to a company which provides drug discovery services to some 18 major pharmaceuticals including Bayer, Pfizer and GlaxoSmithKline and the Japanese group Kyowa Hakko Kogyo.

The table below lists the technology values, found by subtracting cash holdings (at the last financial reporting date, adjusted for any subsequent financings) from the market capitalisation for the major UK-based biotech companies including the two Nasdaq-listed companies. The self-sustaining emerging pharmaceutical companies such as Celltech, Elan Pharmaceuticals, Galen, Goldshield and Shire Pharmaceuticals have been excluded as cash represents a small part of their valuation.

Company Price Cap Cash Tech value

CAT 1,975p £693m £156m £537m

Oxford Glyco 1,175p £622m £204m £418m

PowderJect 388p £315m £51m £264m

KS Biomedix 438p £212m £19m £193m

Weston Medical 186p £230m £41m £189m

Phytopharm 404p £146m £16m £130m

Antisoma 144p £126m £14m £112m

ML Laboratories 73p £114m £14m £100m

Oxford Biomedica 57p £97m £12m £85m

British Biotech 21p £143m £62m £81m

Acambis 112p £89m £21m £68m

Vernalis 235p £95m £21m £74m

SR Pharma 353p £80m £12m £68m

PPL Therapeutics 139p £69m £3m £66m

Alizyme 98p £76m £25m £51m

Protherics 32p £54m £7m £47m

CeNeS 39p £42m £12m £30m

Profile Therapeutics 96p £47m £15m £32m

Gemini ADR $4.50 £99m £60m £39m

Amarin ADR $7.88 £32m £12m £28m

Xenova 53p £37m £10m £27m

Cantab Pharma 79p £35m £15m £20m

Provalis 14p £32m £12m £20m

XTL Biopharma 64p £71m £55m £16m

Pharmagene 103p £51 £38m £13m

Nice post Steve.........would have been in to Oxford Glyco if hadnt been into shp and cat, but didnt want to risk overexposure in the sector.

Have printed your post off and stuck in front of me for future ref.

High quality research Steve, a happy hunting ground i enjoy, BGG, PJP the most recent, as your research shows good value and now lower risk than usual for the sector, if any is lower risk. Thanks for the research.
Not my research i'm afraid... a mate clipped it from one of the papers and emailed me.