Annex L
BRITISH BIOTECH PLC ("the Company")
WHAT MATTERS HAVE BEEN OR ARE CURRENTLY THE
SUBJECT OF AN INVESTIGATION BY THE SEC? WHAT IS THE CURRENT STATUS
OF SUCH INVESTIGATION?
1. INTRODUCTION
1.1 The work we have undertaken in preparing
our report on this topic has involved interviews or telephone
conversations with the following:
1.2 The report is also based on information
from the Company's US lawyer, Sullivan & Cromwell, and Michael
Lacovara, the Partner handling the defence of the proceedings,
to whom we have spoken on the telephone. In addition, we have
reviewed the transcript of the deposition of A Millar and the
Pre-Meeting Submission Paper dated 27 January 1998 and the Wells
Submission Paper of 2 April 1998.
1.3 We have agreed with you the scope of
our investigations. It is important for you to realise that we
have not verified each statement which has been made to us and
that we have not questioned every person who might have relevant
information to give us, such as the trial investigators who are
not employees of the Company. Similarly, in the time available
to us we have not seen every document which might be relevant.
Instead we have asked for those documents which we would expect
to be most important. We have been supplied with copies of all
those documents requested which we are told are in existence and
available. This report is a private one prepared for the sole
purpose of advising the non executive directors of the Company.
Accordingly, we accept no liability or responsibility to any other
person for this report.
2. THE SUBJECT
MATTER OF
THE INVESTIGATION
2.1 Initially all press releases from 1994-96
were subject to review by the SEC. We are informed by Sullivan
& Cromwell that the investigation was subsequently narrowed
to focus on four press releases by the Company, namely;
| 21 March 1995 | "Oral anti-cancer drug, BB2516, successfully completes Phase I studies: clinical trials in cancer patients to begin shortly."
|
| 30 November 1995 | "Marimastat gives positive interim results in cancer patient trials."
|
| 21 May 1996 | "Positive Marimastat results include clinical outcome data."
|
| 4 November 1996 | "Further results from Phase II trials of Marimastat in the treatment of advanced cancer."
|
2.2 We understand from Sullivan & Cromwell that SEC
has now ceased inquiring as to the first and last of these press
releases. The investigation is now focusing on the releases of
30 November 1995 and 21 May 1996.
2.3 Sullivan & Cromwell believes that the basis on
which the SEC was conducting its investigation (at the outset)
was:
(i) The Company's disclosure was misleading in describing
the antigen studies as Phase II trials when the FDA view regarded
them as Phase I(b) or I/II;
(ii) The Company's disclosure of antigen based trials
omitted disclosure of material facts or was false or misleading
on its own terms;
(iii) The Company failed immediately to disclose to the
market the existence of a letter dated 13 September 1996 from
the Division of Drug Marketing Advertising and Communications
("DDMAC").
2.4 The Staff maintain that the Company has breached
Rule 10b-5 of the Exchange Act Rules. Rule 10b-5 makes it unlawful
to employ any manipulative device or make any untrue statement
(see full text below). The SEC also allege violations of filing
rules under Section 13(a) (also attached). A violation of Section
13(a) does not involve any suggestion of fraudulent or deceptive
conduct.
2.5 Sullivan & Cromwell tell us that the SEC has
never given written particulars of the allegations. The above
summary is therefore based on conversations between Sullivan &
Cromwell and the Staff of the SEC and from questioning in depositions.
2.6 We are informed by Sullivan & Cromwell that following
their meeting with the Staff on 29 January 1998, the Commission
will not allege that violation occurred in regard to (i) (relating
to the Phase II issue) and (iii) (relating to the disclosure of
the DDMAC letter). The Staff presently intend to recommend that
the Commission allege the two press releases (of November 1995
and May 1996) are misleading on their face or fail to disclose
relevant matters. It appears that the Staff contend that the relevant
matters relate to the FDAs views and position regarding the use
of "antigens" as surrogate markers; in summary, that
the FDA have expressed reservations to the Company as to the utility
of measuring antigens. The position of senior management (which
is endorsed by Sullivan & Cromwell) is that this is factually
incorrect and is unsupported and inconsistent with the record
and that any doubts which the FDA expressed to the Company are
irrelevant to or not material to the Company's disclosures.
3. THE CURRENT
STATUS OF
THE INVESTIGATION
An informal SEC investigation commenced in October 1996.
Thereafter the Company co-operated by putting forward for voluntary
deposition A Millar, G Hockel, M McCann, H Rasmussen, K McCullagh,
P Lewis and J Noble. These individuals gave depositions throughout
1997.
3.1 In May 1997, the SEC changed the investigation to
a formal investigation. Sullivan & Cromwell believe that this
was for procedural purposes only, namely to give the SEC the power
to subpoena witnesses in the UK; in the event they did not require
this power since the Company continued to co-operate with the
SEC.
3.2 There was then a period of little progress until
January 1998. On 7 January 1998, the SEC wrote stating that the
Staff planned to recommend to the SEC that it authorise civil
injunctive proceedings against the Company and Dr Keith McCullagh,
Dr Peter Lewis and J Noble. Sullivan & Cromwell advise that
including executive directors in proceedings by the Commission
is not unusual; the Commission seek to join the Executive Directors
who are most closely involved in the relevant decisions or announcements.
The proceedings would be for violations of Section 17(a) of the
Securities Act of 1993 and Sections 10(b) and 13(a) of the Securities
and Exchange Act 1934 and Rules 10b-5, 12b-20, 13a-1 and 13a-16
thereunder. The Staff also stated that they intended to recommend
the imposition of civil penalties.
3.3 Prior to doing so, they invited the Company to file
a "Wells submission". This is a procedure in which the
potential defendant states its defence in advance of formal proceedings,
in an attempt to narrow the issues in the proceedings and to convince
the Staff or Commission not to proceed.
3.4 Rather than file a Wells submission immediately,
the Company on the advice of Sullivan & Cromwell decided,
with the Staff's assent, to file a pre-meeting submission paper.
This was filed on 27 January 1998, following which a meeting took
place with the Staff of the Commission (paragraph 2.6 above).
Following the meeting, the Staff indicated they would not continue
with a number of the allegations (as set out in 2.3 above). On
20 March 1998, the Company requested the Staff to produce proper
particulars of the Commission's claim. The Staff have refused
to do so and have required a formal Wells submission to be served
by 3 April 1998.
3.5 In summary, the investigation appears to be moving
towards the filing of a report by Staff to the Commission recommending
the institution of civil proceedings. There is still opportunity
for the parties to negotiate at various stages before that step
is taken. We understand the Company has filed a Wells submission
on 2 April 1998.
3.6 Sullivan & Cromwell have advised the Company
that there is no basis for the SEC's contentions, although they
have not given any formal written opinion as to this. It is their
view that there has been no violation of securities law and that
the Staff's case is misconceived. It is the view of Sullivan &
Cromwell that Company's disclosure complies with the requirements
of US Securities Law. The normal communication and ebb and flow
between any company of this kind and the FDA is not a matter for
disclosure in press releases. In any event the FDA have not expressed
any major concerns about the use of antigens as a surrogate marker,
such that the 21 May 1996 press release was misleading. Sullivan
& Cromwell's efforts have been directed towards seeking to
persuade the Staff that no action should be taken or that there
should be a settlement that does not involve allegations of fraudulent
conduct. Sullivan & Cromwell have also advised that SEC proceedings
are an unpredictable process and they can only advise in terms
of gross probabilities.
Cameron McKenna
16 April 1998
MANIPULATIVE AND DECEPTIVE DEVICES AND CONTRIVANCE
Rule 10b-1. Prohibition of Use of Manipulative or Deceptive
Devices or Contriveners With Respect to Certain Securities Exempted
From Registration.
The term manipulative or deceptive device or contrivance,
as used in Section 10(b), is hereby defined to include any act
or omission to set with respect to any security exempted from
the operation of Section 12(a) pursuant to a rule which specifically
provides that this rule shall be applicable to such security,
if such act or omission to act would have been unlawful under
Section 9(a), or any rule or regulation heretofore or hereafter
prescribed thereunder, if done or omitted to be done with respect
to a security registered on a national securities exchange and
the use of any means or instrumentality of intersials commerce
or of the mails or of any facility of any national securities
exchange to use or employ any such device is contrivance in connection
with the purchase or sale of any such security is hereby prohibited.
Rule 10b-2. Requirements For Catering Purchases.
[Removed and Reserved 4/8/93: Release No. 34-32100.]
Rule 10b-3. Employment of Manipulatives and Deceptive Devices
by Brokers or Dealers.
(a) It shall be unlawful for any broker or dealer, directly
or indirectly, by the use of any means or instrumentality of interstate
commerce, or of the means or of any facility of any national securities
exchange, to use or employ, in connection with the purchase or
sale of any security otherwise than on a national securities exchange,
any act, practice, or course of business defined by the Commission
to be included within the term "manipulative", deceptive,
or other fraudulent device or contrivance," as such term
is used in Section 15(c) of the Act.
(b) It shall be unlawful for any municipal securities dealer
directly or indirectly, by the use of any means or instrumentality
of interstate commerce, or of the media, or of any facility of
any national securities exchange, to use or employ, in connection
with the purchase or sale of any municipal security, an act, practice,
or course of business defined by the Commission to be included
within the term "manipulative, deceptive, or other fraudulent
device or contrivance," as such term is used in Section 15(c)(1)
of the Act.
Rule 10b-5. Employment of Manipulative and Deceptive Devices.
It shall be unlawful for any person, directly or indirectly,
by the use of any means or instrumentality of interstate commerce,
or of the malls, or of facility of any national securities exchange:
(1) To employ any device, scheme, or artifice to defraud.
(2) To make any untrue statement of a material fact or to
???? to ???? a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were
made, not misleading, or
(3) To engage in any act, practice, or course of business
which operates or would operate as a fraud or deceit upon any
person,
in connection with the purchase or sale of any security.
Rule 10b-b. Prohibitions Against Trading by Persons Interested
in a Distribution.
[Removed and Reserved 3/4/97; Release Nos. 33-7375/34-38??67;
IC-22412]
Rule 10b-6A. Passive Market Making.
[Removed 3/4/97; Release Nos. 33-7375; 34-38067; IC-22412]
section shall set forth the complete list of each item as amended.
Amendments shall be numbered sequentially and be filed separately
for each statement or report amended. Amendments to a statement
may be filed either before or after registration becomes effective.
Amendments shall be signed on behalf of the registrant by a duly
authorised representative of the registrant. The requirements
of the form being amended shall govern the number of copies to
be filed in connection with a paper format amendment. Electronic
filers satisfy the provisions dictating the number of copies by
filing one copy of the amendment in electronic format. SeeRule
309 of Regulation S-T.
ARTICLE 3. GENERAL REQUIREMENTS AS TO CONTENTS
Rule 12b-20. Additional Information.
In addition to the information expressly required to be included
in a statement or report, there shall be added such further material
information. If any, as may be necessary to make the required
statements in the light of the circumstances under which they
are made not misleading.
Rule 12b-21. Information Unknown or not Available.
Information required need be given only insofar as it is
known or reasonably available to the registrant. If any required
information is unknown and not reasonably available to the registrant,
either because the obtaining thereof would involve unreasonable
effort or expense, or because it rests peculiarly within knowledge
of another person not affiliated with the registrant, the information
may be omitted, subjec(t to the following conditions.
(a) The registrant shall give such information on the subject
as it possesses or can acquire without unreasonable effort or
expense, together with the sources thereof.
(b) The registrant shall include a statement either showing
that unreasonable effort or expense would be involved or indicating
the absence of any affiliation with the person within whose knowledge
the information rests and stating the result of a request made
to such persons for the information.
Rule 12b-22. Disclaimer of Control.
If the existence of control is open to reasonable doubt in
any ??? leave the registrant may disclaim the existence of control
and any admission thereof; in such case, however, the registrant
shall state the material facts pertinent to the possible existence
of control.
Rule 12b-23. Incorporation by Reference.
(a) Except for information filed as an exhibit which is covered
by Rule 12b-32, information may be incorporated by references
in answer, or partial answer, to any item of a registration statement
or report subject to the following provisions:
(1) Financial statements incorporated by reference shall
satisfy the requirements of the form or report in which they are
incorporated. Financial statements or other financial data required
to be given in comparative form for two or more fiscal years or
periods shall not be incorporated by reference unless the material
incorporated by reference includes the entire period for which
the comparative data is given:
(2) Information in any part of the registration statement
or report may be incorporated by reference in answer, or partial
answer, to any other item of the registration statement or report:
and
(3) Copies of any information or financial statement incorporated
into a registration statement or report by reference, or copies
of the pertinent pages of the document containing such information
or statement, shall be filed as an exhibit to the statement or
report, except that:
(1) A proxy or information statement incorporated by reference
in response to Part III of Form 10-K and Form 10-KSB; and
(d) Notwithstanding the foregoing provisions of this rule,
and financial information required by Part I of Form 10-Q shall
not be deemed to be "filed" for the purpose of Section
18 of the Act or otherwise subject to the liabilities of that
section of the Act but shall be subject to all other provisions
of the Act.
Rule 13a-16. Reports of Foreign Private Issues on Form 6-K.
(a) Every foreign private issuer which is subject to Rule
13a shall make reports on Form 6-K, except that this rule shall
not apply to:
(1) Investment companies required to file reports pursuant
to rule 30bl-l;
(2) Issuers of American depositary receipts for securities
of any foreign issuer, or
(3) Issuers filing periodic reports on Forms 10-K, 10-Q and
11-K.
(b) Such reports shall be transmitted promptly after the
information required by Form 6-K is made public by the issuer,
by the country of its domicile or under the laws of which it was
incorporated or organised, or by a foreign securities exchange
with which the issuer has filed the information.
(c) Reports furnished pursuant to this rule shall not be
deemed to be "filed" for the purpose of Section 18 of
the Act or otherwise subject to liabilities of that section.
Rule 13a-17. [Reserved and Reserved. Volume No. 33-7300,
Mar 31, 1996]
| 
