The regulator's main task would be to vet public statements made by companies on the progress of their drugs' clinical trials to make sure they are not misleading. The move is designed to restore confidence in biotechnology companies in the financial community following the British Biotech scandal.
In their long-awaited report on the affair, due to be published today, the Science and Technology Select Committee will also call for a code requiring pharmaceutical companies to appoint at least one non-executive director with scientific experience to the board.
The all-party group of MPs is set to argue that the measures are needed to avoid a repeat of the scandal engulfing British Biotech, the UK's largest biotechnology group.
For the past five months, the troubled company has been riven by a bitter feud between its outgoing chief executive Dr Keith McCullagh and its former head of clinical trials, Dr Andrew Millar.
Dr Millar has alleged that the board of British Biotech, led by Dr McCullagh, issued overoptimistic press statements on two of the company's star drugs. The company has repeatedly refuted the allegations and has accused Dr Millar of lifting the secrecy on some of the drugs' trials. Dr Millar was sacked in April after airing his concerns to one institutional shareholder.
The scandal has undermined investors' confidence in the whole sector, leading to a sharp fall in the prices of biotechnology stocks and hindering many companies' ability to raise cash on the stock market. Biotechnology companies need external funds to pay for development costs because their balance sheets tend to remain in the red until a drug is successfully launched on to themarket.
After a three-month inquiry into the implications for the industry, the MPs concluded that the appointment of an independent regulator and directors with scientific knowledge were crucial to restore investors' confidence, and help fledgling companies to raise research cash.
They will call for the rapid implementation of measures to prevent any lasting damage to the industry. Sources close to the committee said yesterday that the MPs believed that the events at British Biotech were partly the result of a lax regulatory regime.
"They (the MPs) don't think that the regulatory system is adequate at the moment. There is clearly a need for a tighter framework," the sources said.
They added that a regulator could help ease the "tension between the companies' need to keep investors informed and the urge to issue optimistic statements on their products".
The appointment to the board of at least one non-executive director with pharmaceutical experience would also contribute to solve the problem. The idea was first mooted by Peter Lewis, British Biotech's former head of research, in evidence to the committee. The committee accepted the idea because, said the sources, "the MPs have some reservations on the knowledge base of non-executive directors. Boards need to count on someone who is scientifically proficient."
The report will also criticise the British Biotech's board for their handling of the affair, while Dr Millar is said toemerge largely unscathed.