Monday, March 13, 2000
Biotech stocks on the London Stock Exchange can be expected
to be much more liquid following last week's changes to the benchmark FTSE 100
and FTSE 250 indices. Celltech (LSE:CCH) was one of 10 New Economy companies
to oust 10 established blue chip names from the FTSE 100, which is composed
of 100 of the most valuable companies listed on the LSE. Entry into the blue-chip
index guarantees increased liquidity for a stock from the raft of funds tracking
the FTSE 100.
With the latest entries, FTSE 100 tracker funds will be forced to hold almost 40 percent of their portfolios in technology and telecoms. "There are a number of tracker funds whose role is to replicate the index and so will have to make a weighted investment in the new companies. More significantly, there are many institutions and funds that are only allowed to invest in companies in the FTSE 100 or the second tier FTSE 250 index," noted Andrew Clark, portfolio manager at Finsbury Life Sciences.
CCH, which closed at 1614p and a market cap of £4.3 billion
($6.9 billion) at last Tuesday's deadline, won automatic promotion after
placing 72nd in the FTSE list. For automatic entry into the FTSE 100, a company
has to rank in the top 90 companies by market capitalization. For automatic
relegation to the second tier, a FTSE 100 player has to drop to 111th
or below. Shire (LSE:SHP; SHPGY) is knocking on the door and could join the
elite as early as next month when Cable & Wireless Communications is broken
The more conservative elements of the U.K. investment community
worry that the meteoric rise in high tech valuations is not sustainable. British
Biotech (LSE:BBG; BBIOY) got close to FTSE 100 status in 1996 but just failed
to make it. However, Finsbury's Clark is more confident that both CCH and SHP
will be able to maintain their positions among Britain's elite companies.
Changes to the FTSE 250 index of second-tier stocks were equally
significant. Apart from SHP, other biotech entries include Biocompatibles (LSE:BII),
Cambridge Antibody (LSE:CAT), Oxford Glycosciences (LSE:OGS) and SkyePharma
New to market
OraPharma (OPHM) closed Friday at $32.125, after pricing its
IPO of 4 million shares the day before at $18. The deal raised $72 million,
up from the $56.4 goal in OPHM's Dec. 30 filing. The company, now valued at
$404.8 million, completed two Phase III trials of its Minocycline Periodontal
Therapeutic System in October (see B15).