Investors half-hearted on Biotech rights issue

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The Independent Online
More than half of British Biotech's shareholders shunned the company's pounds 143m rights issue, thought to be the largest cash raising by any biotechnology company ever, but this failed to dampen enthusiasm for the sector yesterday.

Its own shares jumped by 180p to pounds 21.43, well clear of the pounds 20.50 rights price, and there were gains across the board as relief at the lifting of uncertainty surrounding the issue mingled with a flood of good news from other biotechnology companies.

Cantab Pharmaceuticals saw its shares climb 68p to 663p as it announced a collaboration worth up to pounds 24m with SmithKline Beecham to develop a vaccine for genital warts. ML Laboratories' shares were also strong, rising 17p to 361p, after becoming one of the few biotechnology groups to declare a profit.

Only 49 per cent of British Biotech's offering, 3.55 million new shares, was taken up by shareholders. The balance was allocated to sub-underwriters. Kleinwort Benson, manager of the issue, said "a small number" had asked to have their shares placed with the rest of the underwriting pool.

Most of the sub-underwriting was done by existing shareholders, of which the largest before the issue were Morgan Grenfell with 10.6 per cent, funds managed by Mercury Asset Management, which recently dipped below 10 per cent, and the likes of Guardian Royal Exchange, National Provident Institution and Royal Insurance, with between 3.5 per cent and 4 per cent.

There were widely differing views about the success of the issue yesterday. Peter Button of Kleinwort Benson said: "Basically I think 49 per cent was a good result, bearing in mind the sentiment which was created over the last week or so." He dismissed talk that the rump of the rights would now overhang the price, pointing to yesterday's stock market movements as showing the stock now had a "demonstrable floor".

John Savin, an analyst with Greig Middleton, reiterated his view that the shares would have a "fair value" of over pounds 50 by the end of the year. But he forecast that there would be turbulence over the next few days as the after-effects of the rights are sorted out.

Other analysts, however, continue to view British Biotech, under the chief executive Keith McCullagh, as overvalued and suggested that the rights could now overhang the share price. One said: "It is probably quite healthy we have seen this correction. I don't think we will see a slide in the sector, but it will need some more news to get the share prices moving again."

Even so, most observers said Cantab's deal with SmithKline for its TA- GW vaccine for genital warts would be good for both companies. Under the agreement, the biotechnology group will receive pounds 7m down and up to pounds 17m more if certain development targets are met. SmithKline will have exclusive worldwide development, manufacturing and marketing rights to TA-GW products and will also pay undisclosed royalties.

ML Laboratories, meanwhile, said it had made a pre-tax profit of pounds 83,100 in the six months to March, compared with a loss of pounds 1.4m in the comparable period of last year. It is only the second profit in the group's history.

The figures were boosted by turnover, which soared from pounds 617,000 to pounds 2.84m, and interest income, raised from pounds 202,000 to pounds 315,000. Stuart Sim, deputy chief executive, said the group's cash pile had grown to over pounds 30m since January's pounds 25m cash raising as a result the first instalments of recent licensing agreements being received.

Mr Sim predicted that the group would be profitable for the full year as access and licence fees built up.

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