Biotech adventures are in the genes

Biotech offers thrills as well as spills. Last week’s $9.7bn offer from Novartis catapulted shares in US biotech Medco to nearly four times their value a year ago. For early investors it was a reward for patience. The shares went nowhere much the previous 20 years.

In this sector many are called, few are chosen. Biotechs are more likely to be bought out pricily — the ultimate mark of success — if a blockbuster drug is close to winning approval, or has won that validation.

The number of buyouts of biotech companies are dwarfed by the number of fledgling enterprises joining the market. The excitement around genetic engineering means ventures have been joining the market earlier. San Francisco-based Allogene, valued at $2.2bn in October 2018, was less than six months old.

This year has offered unicorn-spotting opportunities galore. Two such creatures joined the market in midOctober. That bumped up the number of $1bn-plus floats to nine in 2019, more than the two years before together.

The newcomers resemble others in the herd. They make heavy losses, may never achieve profitability and have ambitious goals. San Francisco-based Vir has a mission of “creating a world without infectious disease.” Mainz-based oncology drugmaker BioNTech wants to “usher in a new era of individualised medicine”.

The science is exciting. Share price performance often less so. The S&P biotech industry index rose 57% over five years. But rewards are dazzling when Big Pharma takes the bait. Shares in cancer drugmaker Array BioPharma languished for years after it went public in 2000. Pfizer’s $11.4bn offer in June brought returns of up to 2,700%, as fabulous as any unicorn-hunter could desire.

A few years ago, pessimists said biotech innovation — and investment — was a worked-out seam. How wrong they were. /London, November 30

© The Financial Times 2019