Memorandum submitted by Dresdner Kleinwort
Benson
Letter to the Clerk of the Committee from
Mr T G Barker, Vice Chairman, Dresdner Kleinwort Benson
Thank you for your letter of 3 July, I am writing
to give you some background information about Dresdner Kleinwort
Benson and its involvement with British Biotech plc in advance
of the hearing on 15 July 1998.
Dresdner Kleinwort Benson is the trading name
for the investment banking business of Dresdner Bank AG Kleinwort
Benson Limited and Kleinwort Benson Securities Limited are the
legal entities carrying out, respectively, our UK corporate advisory
and equities business.
OUR ROLE
WITH BRITISH
BIOTECH PLC
Kleinwort Benson Limited and Kleinwort Benson
Securities Limited have acted, respectively, as banker and broker
to British Biotech plc. We have raised money for the Company through
private equity placements in 1989 and in 1991, a flotation in
1992 and a rights issue in 1994 and 1996. ABN Amro Hoare Govett
Limited have been joint broker since early 1996.
As financial advisers, we were instructed by
the Company, in connection with the events being investigated
by the Committee, to advise it in its dealings with shareholders
and to act as an intermediary between it and the Stock Exchange.
We were also asked to assist the Company in the preparation of
the circular to Shareholders dated 19 May 1998.
Our advice in connection with the Company's
dealings with its shareholders was given jointly with ABN Amro
Hoare Govett Limited.
CONFLICT BETWEEN
THE STOCK
MARKET AND
THE MEDICAL
REGULATORY AUTHORITIES
We are not convinced that there is any particular
conflict in the biotech sector between medical regulatory requirements
that interim drug testing information be kept confidential and
the disclosure obligations imposed on listed companies by the
rules of the London Stock Exchange. These rules do not normally
require the disclosure of preliminary findings or informal impressions
relating to the progress of studies on potential products.
In our view, the issue facing biotech companies
is slightly different and can be aligned with junior oil/gas exploration
companies and those involved in the search for minerals.
These groups of companies are dependent upon
their ultimate success in the discovery of marketable products
and as a result their share prices can be extremely volatile depending
upon the stock market's view at any moment of the likelihood of
success. News flow is therefore crucial to the market from whatever
source it may come. Some of it may be correct and some may be
incorrect; either way, speculation tends to play a much greater
part in share price movement than for most other companies.
Biotech companies have a particular problem
in that at medical conferences/symposiums, which are a regular
feature of the industry, up-to-date data on specific drug programmes
can be presented by senior trial clinicians who are often independent
of the companies concerned. The companies may then be faced with
the question as to whether price sensitive information has been
released. A judgement then has to be made as to whether or not
an announcement should be made to the Stock Exchange.
These events are held quite frequently and companies
such as British Biotech, with a number of trial programmes in
existence, can be forced to make regular updates which, given
the focus that exists on these programmes, can lead to significant
share price volatility. For companies with a NASDAQ (US) Listing
requiring quarterly reporting as well, the combined effect of
all these announcements can be to give them a higher profile than
companies of their size would normally warrant.
While I do not think that this is strictly a
conflict, it is certainly a problem for biotech companies.
IMPACT ON
FUNDRAISING IN
THE BIOTECH
SECTOR
Over the last year or so, many companies in
the sector, as well as British Biotech, have had to announce events
which have adversely affected market perception, such as the failure
of lead compounds and the replacement of Chief Executives. However,
market perception can change quickly (eg if there is good news
from one of the companies) and, in any event, investors usually
look at new investment propositions on their merits and will support
those companies that can present a sufficiently strong investment
case.
It may be noted that on 29 May 1998, Biocompatibles
raised £29 million by way of a placing and open offer.
OUR TEAM
I propose to bring with me on 15 July Mr Peter
Button and Mr Simon Neathercoat.
Mr Button is a director of Kleinwort Benson
Limited and has been responsible for the banking advisory relationship
with British Biotech since 1991. Mr Neathercoat is a director
at Kleinwort Benson Securities Limited and has been responsible
for the broking relationship since 1992. Both have reported to
me on matters releating to this client since the middle of 1997.
10 July 1998
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