The Investment Column: British Biotech

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The Independent Online
BRITISH BIOTECH says it has put its scandalous past behind it. It has agreed settlements with both the US Securities and Exchange Commission and with whistleblower Andy Millar, who raised questions about the effectiveness of the biotechnology group's drugs. Last week the London Stock Exchange completed its investigation into breaches of its rules. The total cost of the affair in litigation and payments to departed directors was pounds 4.2m.

But while the slate may be clean, the effect of the negative sentiment generated by Millargate makes the company particularly hard to value. The shares closed at 21.5p yesterday, up from a recent low of 15p.

Curiously enough, dividing the group's pounds 97.8m of cash among its 661m shares gives a value of, er, 15p per share. Valuing the group's three drugs in development, however much they are worth per share, is counterbalanced by the negative effect of damaged confidence. Of British Biotech's three drugs, only Marimastat - one of the drugs at the heart of last year's scandal - is far enough through trials to form a base for any estimate of the company's potential. It is a cancer drug, which has had little success in trials to date. Two years ago, the group made bold claims for Marimastat. Unlike many cancer drugs, which only reduce tumour size, it aimed to reduce mortality. If test results show Marimastat has such potential, it could resurrect the company.

Meanwhile, instead of promising miracle remedies at its results meeting yesterday, the company broadcast its plan to diversify the development portfolio to balance the high risks of projects such as Marimastat. What British Biotech needs is the support of a reputable pharmaceutical partner. The group warns this could take months.

Several companies have done due diligence in the past year but no deal has come. The group declined to indicate if it had received bid approaches following the recent merger of Celltech and Chiroscience. If it spends pounds 25m a year, British Biotech has four years to find a partner before it gets desperate. Even so, more bad news about Marimastat could pummel the shares, which are best avoided.