MARKET REPORT : Hello Dolly as biotechs dance back into the spotlight

Biotech is back. After a share price meltdown in the second half of last year the sector has returned to favour with investors, helped by anticipation of good news flow and an upturn in the US biotech market.

According to Dr Erling Refsum at Japanese broker Yamaichi, many large financial institutions now take the view that they must have some exposure on fundamental grounds to the UK biotech sector - the second-largest of its kind in the world after the US.

In a 69-page review just sent out to clients, he estimates that the underlying intellectual assets in the sector are growing at an average of between 30-50 per cent a year while the number of quoted companies is now large enough for a portfolio approach to reduce individual company risk.

Certainly sentiment has been helped by a clutch of upbeat announcements, the most high-profile of which came this week from PPL Therapeutics, responsible for technology which created Dolly the lamb, the world's first cloned mammal. The shares soared another 67.5p to 455p, for a two-day gain of 36 per cent.

This follows news last week that Proteus had successfully developed a speedier test for detecting BSE with the blessing of the Irish government. Shares in Proteus, 7p higher yesterday at 87.5p, have nearly tripled since the breakthrough was reported.

Cantab Pharmaceuticals benefited from the institutional buying, rising 2.5p to 867.5p as the Prudential emerged as the owner of 3.81 per cent of the shares. In its report Yamaichi notes Cantab's "stunning" genital warts trial results while the emergence of drugs giants SmithKline Beecham and Pfizer as partners validates the technology. Also touching new highs yesterday was BTG, up 16.5p to 591.5p, fuelled in part by takeover hopes. The UK government's golden share in the world's leading technology transfer company expires next month.

AIM-listed PolyMASC Pharmaceuticals advanced 10p to 133.5 after posting a maiden loss of pounds 1.1m on sales of pounds 117,000.

Recent speculative buying has also been seen in blood products group Haemocell, whose shares have come off their all-time 3p low. There is talk that the stock, unchanged at 5.5p, could hit 10p soon.

Blue chips followed Wall Street lower with the FTSE 100 index closing at 4,344.7, up 13.6, but 13 points below the day's best showing.

The main casualty was NatWest Bank, down 36p to 776.5p, as analysts rushed to trim their forecasts after a disappointing set of final results. The main concerns were rising costs and a lack of news about a share buy-back. Some switching out of NatWest was also seen, with Barclays the main beneficiary, up 26p at 1,122p.

Further consideration of Dresdner Kleinwort Benson's positive review of retailers pushed Marks & Spencer and Next to the top of the list of best-performing blue chips. M&S advanced 14.5p to 503p, closely followed by Next, 16p better at 609.5p.

Among the laggards, sell advice from UBS, BZW and Dresdner Kleinwort Benson was enough to wipe out all of Monday's gains in Thorn, down 13.5p at 189.5p. EMI, its former stablemate, had a volatile session, dipping 36p in an immediate knee-jerk response to weak nine-month results. But the shares recovered to close a net 4.5p higher at 1,197.5p as the negative impact of currency factors was discounted.

Also in the doghouse was Dalgety, off 6p at 332.5p as HSBC James Capel lowered its recommendation to hold, but rival food producer Hillsdown Holdings fared better, adding a penny to 186p ahead of next week's results as NatWest highlighted expectations for double-digit earnings growth and a 7 per cent yield. Pace Micro hit a new low of 157p, down 3p. Analysts hope that a rare speech by BSkyB supremo Sam Chisholm at a cable conference on Thursday may also provide long-awaited news that Pace has won the contract to make up to 250,000 digital set-top boxes.

A profits warning from zips maker SEP sent the shares crashing 10.25p to 26p for the day's biggest single fall.

Shares in Motion Media, the Ofex-listed video phone maker, paused for breath, slipping 10p to 270p. The shares have been stellar performers in recent weeks on hopes of a big video phone deal with BT that would transform the company.

MM is also exhibiting its video phone, launched last November, at the Cebit trade fair in Hanover next month when an agreement with Deutsche Telekom may also be unveiled.

Taking Stock

r The latest top-of-the-bull-market signal comes from ShareLink, which says the level of inquiries for the forthcoming Birmingham City flotation has been "overwhelming". Queues formed yesterday outside the execution-only broker's Birmingham headquarters as fans rushed to beat this morning's 10 o'clock deadline for applications. This despite the Blues' miserable form on the football pitch and reports that club captain Steve Bruce is poised to take over from Trevor Francis as manager after dealings in the shares begins on AIM on 7 March.

r William Sinclair, the garden products group, flowered as interim pre- tax profits came in at pounds 2.24m (pounds 1.76m). The shares rose 15p to 221.5p, their best level for over three years.