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Biotechs coming back into focus

Published: 09:45 26 Aug 2013 BST

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The small-cap sector is one of fashion and fads. 

Two years ago investors couldn't get enough of the miners, particularly diggers and explorers for gold. 

Now, the miners are being given the barge-pole treatment, leading to some anomalously low valuations among natural resources stocks. But that's another story.

Enjoying a revival of sorts, after many years of being out of favour, are the biotechs.

Biotechnology is the catch-all term used here in Britain to define a few dozen drug developers with low market valuations, but high hopes of discovering the next blockbuster treatment.

Bio-pharma would be a better description as the industry is a hybrid of new and old methods of finding drugs. 

In the US, the NASDAQ biotechnology index has been on something of a roll, doubling in value in two years.

Last September it exceeded its all-time high (posted in 2000) and has continued to rise as the larger, traditional drugs giants have weighed in and begun to snap up some of the more promising bio-pharma firms.

This process of consolidation shows no signs of slowing as deep-pocketed big pharma resorts to buying in new products as its R&D departments run out of ideas.

Here in the UK, there is no NASDAQ-style index charting the ups and downs of the sector.

But we are seeing signs of a revival. A bellwether for the health of the sector this side of the Atlantic is the willingness of investors, particularly the institutions, to fund the ongoing development of drugs.

And in the past six to 12 months there has been a loosening of the purse strings. In February, e-Therapeutics (LON:ETX) raised £40mln via a share placing, while Silence Therapeutics (LON:SLN) brought in roughly half that figure, also by selling stock.

Both were large issues of equity compared with the respective companies' market valuations and designed to fund specific clinical programmes.

They stood out from the previous shoes-string cash calls that did nothing more than give these businesses a further three or six months cash. 

Stem cell research group ReNeuron (LON:RENE) is the latest to enjoy the upturn in the fortunes of the sector, not to mention secure its immediate financial future.

It has done so by raising £33mln through a placing and a grant from the Welsh government.

A number of new heavyweight investors have come on board, including Invesco, Abingworth and the Wales Life Sciences Investment Fund.

Those who invested in placing at 2.5 pence are sitting on a very decent profit. However, rank and file investors have also enjoyed the ride, with the stock up more than 90% in the year to date.

What ReNeuron is doing is at the very cutting edge of medicine using a stem cell therapy called ReN001 to treat stroke victims.

Initial studies to test the safety of injecting disabled patients with stem cells have shown some very encouraging early signs efficacy.

Getting the fundraiser over the line will be critical to building on this excellent start.

ReNeuron chief executive Michael Hunt said the package would not only cover the costs of all of its therapeutic programmes through Phase II, proof-of-concept clinical studies, but should also be enough to tide the company over "to value inflection through commercial deals over the next three years”.

“We expect our stem cell therapy candidate for the blindness-causing disease, retinitis pigmentosa, to enter the clinic next year,” he added.

"We have well-defined clinical development plans for these therapeutic programmes and process development plans to both enhance and take control over the manufacture of our stem cell therapy candidates as they get closer to market."

Having a promising clinical programme is one thing. Getting funding for it is the challenge - although it is becoming a little easier (only a little). It is the key to unlocking further value and provides useful third party validation of the company and its technology.

ReNeuron has extended cash runway as it focuses on validating its exosome...

ReNeuron Group PLC (AIM:RENE, OTC:RNUGF) executive chairman Iain Ross tells Proactive that the company is focused on generating in vivo data and validating its exosome delivery technology platform CustomEX as 2023 gets underway. ReNeuron will conduct head-to-head studies with its competitors...

on 17/2/23