The majority of chief executives I have met while researching this article have chuckled when I told them I am attempting to value biotechnology companies. It’s a fair response – trying to put a tangible value on a company whose products are often barely more than an idea (and a complicated idea at that) is certainly not a simple process. And it is perhaps for this reason that biotech companies in the UK – more conservative and risk-averse than the US – have, so far, failed to gain any real traction.
Biotech is unquestionably important and increasingly exciting, but its complexity makes it pretty inaccessible to the average investor. In fact, the first hurdle to overcome is understanding what biotechnology actually is. The main difference between biotech and its older cousin pharmaceuticals is that the former involves the manipulation of living organisms to create treatments. Put simply, it is biology, where pharma is chemistry. The techniques used in biotech create large molecule treatments that would be impossible to make with the traditional chemical techniques of pharma and this has allowed scientists to develop a new generation of therapeutics.
So while scientific breakthroughs have been exciting, in Britain biotech hasn’t enjoyed a huge amount of commercial success. That’s not to say it can’t be a very lucrative market and evidence for this is clearly shown across the pond. US group Amgen (US:AMGN), which is considered one of the first generation biotechs, raised $42.3m (£31.9m) when it joined Nasdaq in 1983. Just over 20 years on and Amgen has a market capitalisation of $122bn, which places it in the list of the top 10 pharma and biotech companies globally. Gilead (US:GILD) - with a market capitalisation of $138bn and annual sales in 2015 of $32bn – is also in among the giants, having achieved huge success with its hepatitis C drug, Sovaldi.