British biotech takes off

With a catalogue of exciting breakthroughs, the most exciting story for penny investors this year has been biotechnology, says Tom Bulford.

This year the most exciting story for penny investors has been biotechnology.

There have been major deals such as GlaxoSmithKline's $3bn purchase of Human Genome. There have been serious returns for investors the Nasdaq Biotechnology index is up about 40% over the last year! But it's the catalogue of exciting breakthroughs that convinces me that this has the makings of a major investment boom.

The UK biotech sector is certainly thriving. Take the example of Scancell Holdings (SCLP). Last week Scancell doubled in value after a breakthrough which "has the potential to transform the therapeutic cancer field".

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I featured Scancell in this column in March. At that time I told you that Scancell has developed a therapeutic DNA vaccine. Once injected, this DNA is then read by cells which start to make specific proteins. The body recognises these proteins as foreign. This, in turn, awakens the immune system, which then produces T cells' that zap the cancer tumours and prevent the spread of the disease.

This vaccine is now in human trials with results expected next year. But in the meantime Scancell has gone a step further.

A cancer vaccine is the Holy Grail

Scanell has now developed a platform technology called Moditope that could boost the effectiveness of the many therapeutic cancer vaccines that are under development, at Scancell and elsewhere. The field of cancer vaccines is a highly promising one, and many experts believe that immunotherapy - the use of the body's own immune system - can be the most effective weapon against cancer.

Earlier this month, for example, drug giant Novartis (VTX:NOVN) announced a $20m collaboration with the University of Pennsylvania, where researchers have already reported stunning results of an immunotherapy trial that gave long-lasting remission to leukaemia patients for whom standard therapies had stopped working.

Scancell's Moditope seeks to improve the impact of the CD4 T-cells that destroy tumours.

Here's how it works

Antigens are proteins that exist on the surface of cells. Some antigens are much more common on the surface of cancer cells than of normal cells. These cancer specific antigens can form the basis for developing vaccines that selectively alert the immune system to find and destroy them.

The particular part of the antigen that is recognised by the immune system is called the epitope. The immune system works by recognising these epitopes and then sending out CD8 and CD4 T-cells to kill the cancer cells.

But while it is relatively easy to tell CD8 cells what to do, it's far harder to get a response from the CD4 T-cells. Scancell has found a way to force the CD4 T-cells to wake up and start killing cancer cells.

In short, Scancell's Moditope technology produces killer CD4 T-cells that destroy tumours, but without toxicity. It can potentially boost the impact of many different types of cancer vaccine.

I'm assured that Professor Lindy Durrant, the brains behind this invention, as I write to you is dancing for joy.

When I spoke to joint chief executive Dr Richard Goodfellow he gave the usual warnings about the need for lengthy future trials and the uncertainty of outcomes. But nonetheless, he is clearly excited. And this is not the first bit of recent good news from the UK's biotechnology sector.

The growing list of UK biotech success stories

In February IP Group (IPO) was rewarded by news that Oxford Nanopore Technologies, in which IP had a 21.5% stake, had unveiled a $900 DNA sequencing device the size of a memory stick.

In April shares in Synairgen (SNG) jumped after it reported good results from a trial on asthmatic patients.

And in June Upsher-Smith Laboratories of the USA bought British biotech Proximagen for c.350p per share - three times the share price at the start of the year.

So some money is being made in the UK biotech sector, as indeed it is in the United States. Over the pond, where the biotechnology industry is much larger and better understood, a bull market is under way. As I said earlier, it's already seen the representative NASDAQ Biotechnology index rise about 40% over the last year.

But there is no reason why American investors should have all the fun. This is an industry in which the UK is well able to compete. We have top scientists, excellent universities and a government that at least expresses support for the industry and appears to recognise its potential. And I'll keep you right up to date with the most exciting stories in this sector in the weeks and months ahead.

This article is taken from Tom Bulford's free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.

Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd.

Tom worked as a fund manager in the City of London and in Hong Kong for over 20 years. As a director with Schroder Investment Management International he was responsible for £2 billion of foreign clients' money, and launched what became Argentina's largest mutual fund. Now working from his home in Oxfordshire, Tom Bulford helps private investors with his premium tipping newsletter, Red Hot Biotech Alert.