Oxford BioMedica dips 20% as merger fails

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OXFORD BIOMEDICA is to pursue several further informal bid talks after the biotech company said yesterday that merger negotiations with its first suitor had collapsed.

The negotiations that have just been broken off are believed to have been with the acquisitive biotech company Vernalis. Sources said the talks stalled over a number of issues, including valuation. It is also understood that there was no agreement over the ongoing role of the company's founders, the husband and wife duo Professors Alan and Susan Kingsman.

Vernalis is chaired by Peter Fellner, the former chairman of Celltech, with a mission to consolidate the fragmented UK biotech sector.

The talks proved a "useful distraction", according to Professor Alan Kingsman, the chief executive, and are understood to have flushed out other expressions of interest. He said: "There are lots of smaller and larger companies active in looking for mergers and acquisitions. It never surprises me to get a call saying, `Alan, let's have a chat about getting the companies together'."

Share in the group plunged 20 per cent on news that merger talks with the as yet mystery suitor had been called off. They closed down 5p at 19.5p, still 10 per cent higher than when rumours of a possible deal began to swirl. Speculative investors had been betting on a takeover by one of OXB's giant drug development partners, although analysts said a tie- up with a UK quoted or private biotech company was more likely.

OXB was set up by the Kingsmans as a spin-out from Oxford University in 1995, and it specialises in developing drugs using gene therapy. Its most advanced product, TroVax, which is in the second of the three phases of human trials necessary for approval, is a treatment for cancer.

Professor Alan Kingsman said several elements of the proposed merger were unsatisfactory, but that he would not have stood in the way of a deal that was in shareholders' best interests. "I am not pathologically possessive of Oxford BioMedica, although I am totally committed to it. I have no plans to step aside and I don't particularly want to, but if it is important for shareholder value then I would step aside.

"As the products move into phase III and beyond and the emphasis becomes commercial rather than technical, then it may be time to step aside, but discussions with partners are now still significantly technical."

OXB is hopeful that phase II trials results on TroVax, due this month, will show that it prolongs the life of patients suffering from colorectal cancer.