Biotechnology firms, whose bosses have been censured for their extravagant lifestyles, will be subject to a code of practice, endorsed last week by the Government. It is intended to stop them exaggerating the potential of their products to investors.
The guidelines have been drawn up by the BioIndustry Association in response to several scandals in the industry which is potentially worth billions to the British economy but faces immense competition to deliver to the market its promised "miracle cures" for diseases such as cancer.
The latest of these scandals broke last week when Cortecs, a company chaired by the former secretary of state for education, Lord Patten, admitted that its drugs for osteoporosis and bronchitis were not as advanced as initially indicated. As a result, Cortecs' share price, once as high as pounds 4, plummeted by 64 per cent in one day to 9p and three of its executives resigned.
The company had faced criticism earlier in the year over the lavish expenses of its founder, Glen Travers, who has since resigned. These included helicopter lessons, family holidays and trips to Disney World.
The House of Commons Select Committee on Science and Technology has already investigated another biotechnology company, British Biotech, which was accused of misleading investors over the potential of its drugs.
The committee will investigate Cortecs and there have been calls for biotechnology companies to be monitored by an independent body. The Stock Exchange has indicated that it will launch an inquiry.
Concern has been steadily growing over the activities of the biotechnology industry, which is the newest but potentially most lucrative area of scientific development. There are 460 such companies in the UK, which are all desperate to be first in the race to gain licences for their drugs. However, none has yet succeeded and it can take 10 years for a drug to reach the market.
In the case of Cortecs, the company became a victim of its own arrogance. In order to keep investors interested, it told them that it had carried out adequate trials for its drugs to gain approval. However, the company was forced to confess that this was not the case when it tried to obtain a licence for the drugs in Finland and was told more trials were needed.
In the meantime, its founder, Glen Travers, an Australian stockbroker known for his slick approach, was enjoying a lavish lifestyle at the company's expense. His pounds 200,000 "perks", now the subject of litigation, included a pounds 42,000 membership of the Young Presidents' Organisation which involved networking with other business leaders in such exotic locations as the Amazon and Hawaii. They also included helicopter lessons and pounds 34,500 worth of flights for him and his family to Australia as well as the use of a chauffeur. Cortecs has only pounds 16m of venture capital left and has had to sell the company helicopter for pounds 1m.
It is not the first biotechnology company to fall and City analysts believe it will not be the last. British Biotech is in tatters after an employee claimed it had misled shareholders on the effectiveness of its cancer and pancreatitis drugs.
As a result, British Biotech's chief executive was forced to resign. The executives of two other biotechnology companies, Scotia and Biocompatibles, have also resigned in similar circumstances.
The BioIndustry Association admits that some biotechnology companies do not have the experience to cope in a competitive market. "We have some people who are brilliant scientifically but they are not always aware of business issues," said a spokeswoman. "It is a new industry and what has happened with Cortecs highlights the need for regulation."
Dr Ian Gibson, a Labour member of the Commons Science and Technology Select Committee, says public confidence in the biotech industry is low and will be restored only if companies are monitored by an independent watchdog. "We are worried about the 'get rich quick' element who want to retire to their deckchairs after making a killing at the expense of thorough research," he said. "Everyone is so excited about the market that companies tend to talk up their products and let their mouths carry their brains. There has to be greater regulation."
Bill Blair, a pharmaceutical company analyst at Robert Fleming Securities, said there had been suggestions that biotechnology companies such as Cortecs should not be quoted on the Stock Exchange.
"It is impossible to expect fund managers to understand exactly what they are getting into because the technology is so new," he said.
"These companies burn a lot of cash quickly so there is pressure to get the products to market in a short timescale. The investors are clamouring to get a return on their money so the companies cut corners and take risks rather than carry out extensive clinical trials. If action is not taken, there will be many more casualties."