Bioglan pressured to outline strategy as debt levels rise

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Bioglan Pharma, the skincare group whose shares have slumped in a disastrous acquisition attempt, could be forced to ask shareholders to change its articles of association after exceeding the allowed debt levels.

The company has been brought low by an attempt to buy a portfolio of 20 skincare products from Bristol-Myers Squibb, the US pharmaceuticals giant. Arguments over how to fund the £500m deal led to the resignations of ABN Amro, the house broker, and the finance director, Peter Johnson, in August. They had fought Terry Sadler, Bioglan's founder, chairman and chief executive, who argued that the acquisition could be funded entirely by raising debt.

Bioglan shares have lost 85 per cent of their value since then, and analysts believe the deal will be formally abandoned when the company reports half-year figures on Friday.

Bioglan's debt levels have been a mounting concern in the City, where the most recent company update – putting total borrowings at £105m – was greeted with alarm.

It is understood that the debt-to-equity levels allowed by the company's articles of association could have been breached, because mounting debts have coincided with falling asset values. The group has a 6 per cent stake in CeNeS Pharmaceuticals, whose shares plunged last month when it suspended research projects after it failed to attract backing for a rights issue.

There is also speculation that Bioglan will this week take the opportunity to restate previous years' accounts and usher in a new revenue recognition policy. Mr Sadler has often been criticised over accounting for the proceeds of outlicensing deals in one lump as top-line sales.

Bioglan has pushed back its interim results until Friday, the last possible day, as it discusses strategy with Goldman Sachs, its new broker. While the Bristol-Myers Squibb deal appeared doomed, with even a convertible bond issue looking impossible at the current depressed share price, some observers believed an ongoing relationship with the US pharmaceuticals firm could still be salvaged.

It was speculated that Bioglan could "rent" the skincare portfolio, marketing the products for Bristol-Myers Squibb and taking a cut of the profits. The cash would help to pay for the US launch of Solaraze, Bioglan's own treatment for actinic keratosis, a pre-cancerous skin condition.

Mr Sadler admitted after the most recent trading update that this week's interim results would be disappointing because the debacle in the US had consumed so much management time.

Johannah Walton, a pharmaceuticals analyst at Lehman Brothers, said the results would show Bioglan's deteriorating financial position. "One of the problems that will emerge will be that the company has built up a costly sales infrastructure in the US ahead of doing the Bristol-Myers Squibb deal, and that deal is not yet done. The logic of doing the deal in the US was that it would give them a number of cash- generating products with which to surround Solaraze."

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