British Biotech admits to talks on merger with German rival

British Biotech, the struggling cancer specialist group, yesterday confirmed speculation it was in merger talks and named its potential partner as its German rival MorphoSys.

The UK company has been desperately looking for a deal for some months, as it is sitting on a £50m cash pile that it cannot plough into drug development because several of its high-profile projects have collapsed.

MorphoSys's problem, in contrast, is that it is very short of cash to develop its technologies for the production of synthetic antibodies. The company had about €28m (£17m) in cash at the end of June.

A combination of British Biotech and MorphoSys, which is listed on Germany's Neuer Markt, could create a company with a market capitalisation of about £75m to £100m. British Biotech's shares, which have slumped 70 per cent in the past year, rose 0.01p to 5p.

As well as finding a home for its cash, a deal with MorphoSys could present British Biotech with an opportunity to revamp its image and change its name.

One pharmaceuticals analyst said: "The strategic fit would be quite good because British Biotech has a lot of experience and could also provide the cash MorphoSys really needs to push forward its antibody technology."

British Biotech, which has held unsuccessful discussions with its fellow cancer groups Xenova and Antisoma, said the latest talks were at an early stage which "may or may not lead to a definitive agreement".

Morphosys has entered into several collaborations with senior sector players, including Roche, Bayer and Schering, since becoming the first German biopharmaceutical company to go public in 1999. But it has suffered from the sharp fall in the Neuer Markt and is worth €75m (£47m), compared to British Biotech's market capitalisation of £33m.

At its peak in the 1990s, British Biotech had a market value of almost £2bn and came close to entering the FTSE 100. But it fell swiftly from grace when its biggest hope, the cancer drug Marimastat, failed clinical trials. The drug had to be abandoned because its effect on cancer cells was no better than a placebo. The company is still being threatened with legal action from shareholders who said they were misled about the drug's potential.

British Biotech alerted the market on Friday to the possibility of merger talks.