Profitability: A Mixed Blessing for Celltech

Profitability was a long time coming for UCB Celltech . The company—the UK's oldest biotech—had been in business for over 20 years before announcing maiden profits in 2000. Yet when these profits came, investors weren't impressed. They'd bought into a classic biotech play—a company with a strong antibody technology base generating innovative new drugs for its pipeline—expecting that in the not-too-distant future one or more of those biotech products might succeed, delivering dramatic, breakout profits and sustaining exceptional future earnings growth. Indeed, they'd pushed up the company share price by over 110% in the six years since IPO on the back of these expectations (See Exhibit 1).

The size and source of Celltech's earnings were a disappointment. The £25 million ($37 million) pre-tax profit reported for 2000...