For some time now, European biotech executives have argued that they have one advantage over their more experienced U.S. counterparts: they can see the mistakes made by the pioneers and avoid repeating them. But the evidence is beginning to tell a different story, as a series of late stage disappointments has knocked the stuffing out of publicly quoted U.K. bioscience stocks and increased skepticism among investors - a scenario reminiscent of the U.S. in the early 1990s.

The parallel is even more blatant because in both cases the doldrums were preceded by a bull market driven by high expectations. In the current period, the U.K. bull market of 1996 was driven by the clinical trial euphoria surrounding British Biotech (LSE:BBG; BBIOY; Oxford, U.K.) and its lead products marimastat and Zacutex.

And just as happened in the U.S., investors in the U.K. have become increasingly skeptical. There have been too many instances of companies issuing disappointing news on clinical or commercial progress of leading products at the likes of Biocompatibles International (LSE:BII; Farnham, U.K.), BBG, Celltech (LSE:CTP; Slough, U.K.), Scotia Holdings (LSE:SOH; Stirling, U.K.) and Stanford Rook (LSE:SFK; London, U.K.). Consequently, company valuations have barely budged on good news, and if they do, they tend to fall back fairly quickly on profit taking.

Now it looks like the market will remain becalmed for some time because of a dearth of consequential news events in the near term that could re-ignite the sector. This is going to require biotech managers to go back to basics and re-examine how they intend to show that investors will enjoy a return on investment in their companies.

The Clear Route (again)

At the end of 1993, as valuations of biotech companies continued to fall, BioCentury introduced the idea of a "Clear Route" - a blueprint for building corporate value by doing quality clinical trials that would lead to a high probability of regulatory approval. The key to the concept is the responsibility of companies to give investors credible reasons for anticipating that share prices will rise through the proactive management of clinical risk - providing investors with a "Clear Route to ROI".