19p - Pharmaceuticals - If any company serves as a reminder of the perils of investing in biotechnology shares it is Antisoma. The drugs developer was lauded in 2002, when it signed a deal worth up to $500m with French drugs giant Roche to license most of its cancer product pipeline. Investors could not believe their luck when its shares jumped 124 per cent.

But last year, the share price halved after Antisoma's ovarian cancer drug, R1549, flunked late-stage clinical trials, and Antisoma abandoned it. This left a major hole in the company's research pipeline. Since then, Antisoma has been valued at not much more than its cash resources. That might have made the shares look cheap, but for the immature product pipeline.

Fortunately, thanks to the deal with Roche, which remains intact, and a 14m fund-raising last year, the company is well-funded with 39m cash. And, recognising the need to bolster Antisoma's development pipeline, chief executive Glyn Edwards has just bought Aptamera - a small cancer drug developer in the US - in a share transaction worth 11.5m. The acquisition brings in ARGO100, a product that treats a number of different cancers, and that recently completed early clinical trials.

The drug is a novel agent known as an 'aptamer', which targets a molecule called 'nucleolin'. This molecule is usually found inside the nucleus of normal cells, but is also found on the surface of cancer cells. ARGO100 attaches itself to the nucleolin on the cancer cell, and stops it growing.

Unusually, no side-effects were reported in the clinical trials. If this is borne out in further studies, it would be a major advantage, given the unpleasant side-effects associated with conventional chemotherapy. "It's a really promising product that looks like it could have broad applications," says Mr Edwards.

The US drugs regulator has given Antisoma various incentives to develop ARGO100 to treat pancreatic cancer, and Antisoma plans to develop the drug for kidney cancer and acute myeloid leukaemia. These are niche indications, and the product lies outside the collaboration with Roche. But Sam Fazeli, an analyst at investment bank Nomura, says that, if the drug demonstrates efficacy in larger cancer markets, Roche would be the "natural" licensing partner.

Antisoma has three other products in clinical trials, all of which are currently valued at virtually nil. In particular, there is R1550, which is part of the Roche deal, and is in early trials. The product is an antibody drug for breast cancer that targets MUC-1, an antigen present in 90 per cent of breast tumours. Analysts believe that the drug could be as successful as Genentech's Herceptin, which targets a molecule present in around 30 per cent of breast tumours, and had sales of about 120m in the first half of 2004. Mr Fazeli thinks that R1550 could have peak-year sales of more than 850m. Antisoma should report some trial data before the summer.

Another product, AS1404, should report mid-stage trial results in the second half of 2005. Like Genentech's Avastin for colorectal cancer, the product treats lung cancer tumours by shutting down the blood vessels that feed them. Nomura forecasts peak-year sales of approaching 800m. Data from early trials of AS1405, which treats brain cancer, are also due in the second quarter, so there should be no shortage of news from Antisoma this year.

That said, this extra activity will mean bigger losses this year, and the company is likely to need to raise more capital before it reaches profits - if it reaches profits - because cancer drug development is a highly risky business. It is difficult to replicate the slow growth of cancer in humans in laboratory studies, which is why many products fail late-stage trials. Nevertheless, at their current level, the shares look worth the gamble. Buy.

john14

Thanks for that john14 I have been topping up since the big drop I am now well informed.