Shares in the beleaguered drug company plunged over 17 per cent to an all-time low of 21.5p after it admitted that Marimastat, one of its most advanced compounds, did not work in the treatment of pancreatic tumours.
Industry experts said the result cast doubts over Marismatat's efficacy and could jeopardise a major part of British Biotech's clinical programme.
The failure of the 400-patient test is a huge blow for the company as it had been predicted over 15 months ago by Andrew Millar, the group's former head of clinical trials.
Mr Millar was sacked in April for looking at confidential data in the trial - a procedure known as "unblinding" - and for expressing concerns to shareholders over the efficacy of marimastat and the anti-pancreatitis compound Zacutex.
The affair sparked a bitter row between Mr Millar and the board, which caused a collapse in the share price from its peak of over pounds 3 and led to the departure of the chief executive, Keith McCullagh.
Mr Millar yesterday said: "We knew this in December 1997. I feel terribly sorry that the right management of a potential new drug was not undertaken."
The new chief executive, Elliot Goldstein, yesterday said that the study's negative results did not spell the end of Marimastat.
He said the test showed that the drug had failed its target of a 16 per cent reduction in death rates compared with an existing drug. However, he said pancreatic cancer was one of the most difficult cancers to treat and that further studies were needed to assess Marimastat's efficacy.
British Biotech was spending around half of its pounds 24m development budget to trial the drug on different forms of cancer in nine other studies and results were expected over the next 12 month. "We are not deciding to quit. The plan is to bring the nine studies to their end," Dr Goldstein said.
Peder Jensen, the development director, denied that the failure of the trials vindicated Dr Millar's actions. He said that when Dr Millar unblinded the study, he could not have predicted the outcome because the data was too scant. "He just happened to be right," Mr Jensen said.
Mr Millar, who is embroiled in a legal case with the company set to be heard in the High Court later this year, rejected the suggestion. "It is a virtual mathematical certainty that this was to happen".
He predicted that the other study he unblinded, a key trial for Zacutex, was also set to fail. The company said it would report on the trial before the end of next month.
City analysts said the result of the trial would prompt investors to reduce their estimates of Marimastat's future earnings. The drug was once hailed as a potential blockbuster with estimated sales of over $1bn a year.
However, a series of setbacks has prompted experts to revise sales predictions to $200m.