Select Committee on Science and Technology Minutes of Evidence

Supplementary Memorandum submitted by Dr Peter Lewis

  Following submission of my memorandum of 13 July to the Select Committee on Science and Technology I have attended the Select Committee hearing on 15 July and read the transcript of the first hearing on 1 July. I have two concerns; first that Perpetual's implied charge that "British Biotech has mislead investors" might go unanswered, and second that the Select Committee might pass judgement on British Biotech in isolation from its peer group of biotech companies.

DID BRITISH BIOTECH MISLEAD INVESTORS?

  It seems obvious that, if a company's share price collapses, investors must have been deceived or misled. However, this is not necessarily the case, particularly in the biotech sector where extreme volatility of share prices is the rule rather than the exception. There are really three allegations of misleading investigators that British Biotech needs to refute;

1.   The marimastat press releases of November 1995 and May 1996 were overly optimistic and "promotional". The United States SEC has investigated this allegation at length. Of three points initially raised, the SEC has dropped two and is now focused on the single question as to whether drug-induced changes in cancer antigens can truly be said to constitute "initial evidence of efficacy" in cancer patients. This is a technical medical issue and in this regard it is relevant that the May 1996 press release was formally verified by Dresdner Kleinwort Benson's independent technical advisers during the course of underwriting the British Biotech 1996 rights issue.

2.   The company should have kept investors informed of discussions with EMEA on the approvability of the Zacutex product licence application. It is not usual to disclose such discussions before they reach a conclusion. I have previously suggested that incorporating a public hearing on EMEA applications could improve this situation. The lengthy period of confidential discussions is awkward for both the company and the analysts, and this inevitably risks "leaks" of price sensitive information.

3.   The company should have disclosed discouraging results of Zacutex and marimastat clinical trials still in progress. Since only Dr Millar had these data, obtained by improperly unblinding clinical trials, it would have been impossible to do this.

  As I have already submitted, it is difficult to determine when a potential setback becomes a definite problem, which will harm a company's prospects. However, I do not believe the company misled or deceived investors. In their evidence to the Select Committee, Perpetual tacitly acknowledged this by falling back to a reserve position that biotech companies have a duty "to manage expectations". This is a very much more subjective matter, and is tantamount to saying that biotech companies have a duty "not to disappoint".

  Certainly during my time at British Biotech, the company was extremely scrupulous in its handling of investor relations, there was extensive consultation on press releases and professional advice was frequently sought as to when and how information should be released.

BRITISH BIOTECH IN CONTEXT

  British Biotech was the first biotech company quoted on the London Stock Exchange; there are now 33 publicly quoted "bioscience" companies in the UK. A common factor of these companies is the extreme volatility of their share prices. Encouraging research results can drive valuations very rapidly higher; setbacks induce share prices to collapse. Virtually without exception, all the leading UK biotech companies have experienced at least one episode where their share price has fallen rapidly, often followed by strong recoveries. The precipitating cause of these incidents has included product licence rejection (Scotia), poor trial results (Stanford Rook), disappointing progress (Xenova, ML Labs, Oxford Biomedica), loss of corporate deal (Cantab, Celltech), or management disputes (Chiroscience, Cortecs). In the last 18 months, British Biotech has lost two executive directors, delayed a key Phase III trial, lost a partnership with Glaxo Wellcome, and had a product licence refused. These events accounted for half the company's loss of value, Dr Millar's allegations for the remainder. The attached statistical analysis from PricewaterhouseCoopers compares British Biotech with its peer group and shows the very large changes in valuation to which these bioscience companies are subject. A similar situation exists in the United States where there are over 200 publicly quoted biotech companies. It is quite usual for US biotech companies to suffer major falls in share price following disappointing clinical results or product registration delays.

  Although biotech share prices are volatile, most holders of these stocks are institutions which largely ignore short term changes in valuation, investing for the long term in a particular technology.

22 July 1998

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PwC BioScience Index & Share League

May-June 1998

PRICEWATERHOUSECOOPERS

  As you will see from the above logo, we are delighted to tell you that since 1 July 1998 we have been trading as PricewaterhouseCoopers. Accordingly, the name but not the research, compilation or publication of the BioScience Index and Share League, has changed.

THE BIOSCIENCE INDEX

  The PwC BioScience Index (the "BioScience Index") highlights the performance of UK bioscience companies compared to the FTSE All-Share Index. The FTSE All-Share Index continues to outperform the BioScience Index by 53 per cent over the last 22 months.

THE BIOSCIENCE SHARE LEAGUE

  The PwC BioScience Share League (the "Share League") analyses the share price performance of 33 UK bioscience companies relative to the share price at 31 August 1996 (or the share price at the end of the month in which the company's shares were listed).

  We have compiled the BioScience Index and Share League from share price and market capitalisation data published in the Financial Times and amended by the appropriate Adjustment Factors obtained from Financial Times Information. May and June data has been taken from the Financial Times on 1 and 29 June 1998 respectively.

KEY NEWS IN MAY AND JUNE 1998

  The BioScience Index has fallen by 12 per cent during May and June 1998 to approximately 91 per cent of its value at 31 August 1996. Only eight of the 33 companies within the Share League have a higher index than at 31 August 1996.

  The whole sector obviously continues to suffer the overhang of the British Biotech saga.

GAINERS

  Biotrace and Ecolab Inc (their distributor partner in North America) signed an agreement for the supply of their single shot surface and water hygiene monitoring systems, Clean-Trace and Aqua-Trace, to Pepsi-Cola Company.

  Oxford Molecular acquired Chemical Design Holdings for £6.2m. The purchase will enable Oxford Molecular to offer a broader range of service in cheminformatics, molecular design and combinatorial chemistry.

  Phytopharm said it was discussing potential drug licensing deals with multinational companies. The company has two products in Phase II trials in the UK; its botanical alopecia drug, P45, and an osteoarthritis treatment.

DECLINERS

  Glen Travers, founder and CEO of Cortecs, departed in June; Dr Michael Flynn is acting CEO. Cortecs has launched Oratol Limited, a new and independently funded biopharmaceutical company. Oratol will develop novel products for the prevention and treatment of allergies and autoimmune diseases.

  Tepnel Life Sciences announced that losses in the second half would be similar to those reported at the interim stage, after slower than expected sales. However, the company also announced agreements with two European distributors for its Daras DNA detection instrument.

  Vanguard Medica's share price was affected by SmithKline Beecham's decision not to take up marketing rights for its migraine drug, frovatriptan.

	Company	Index
1	Shield Diagnostics	352.31
2	KS Biomedix	309.89
3	Biotrace Intnl	302.11
4	Powderject	253.86
5	Shire Pharmaceuticals	189.35
6	Polymasc Pharmaceuticals	110.27
7	Peptide Therapeutics	110.02
8	Quadrant Healthcare	102.30
9	Cantab Pharmaceuticals	99.80
10	Alizyme	98.03
11	Proteus Intnl	82.41
12	SkyePharma	76.33
13	Oxford GlycoSciences	70.77
14	Tepnel Life Sciences	66.67
15	Chiroscience	65.28
16	Vanguard Medica	61.19
17	Celltech	58.26
18	Oxford Molecular	56.38
19	Phytopharm	53.02
20	Cambridge Antibody	52.66
21	Enviromed	51.67
22	Xenova	47.72
23	Scotia	46.11
24	PPL Therapeutics	43.40
25	Oxford Biomedica	40.26
26	Core Group	32.19
27	Celsis Intnl	32.04
28	Cortecs	30.67
29	Biocompatibles Intnl	30.60
30	Therapeutic Antibodies	29.96
31	ML Labs	24.32
32	British Biotech	16.78
33	Stanford Rook	16.00

SUPPORTING DOCUMENTS

  1.  Letter from P Lewis to K MCCullagh of 23 April 1997 resigning from company with reasons. (Annex 1)

  2.  Letter from K MCCullagh to P Lewis of 6 May 1997 acknowledging P Lewis's contribution. (Annex 2)

  3.  Letter from P Lewis to Board of 27 May 1997 formally resigning. (Annex 3)

  4.  Letter from M Gray to P Lewis of 27 May 1997. (Annex 4)

  5.  Letter from P P MCCann to P Lewis of 29 May 1998 supporting P Lewis concerning unblinding of US Zacutex clinical trial. (Annex 5)

  6.  Letter from D Lockhart to P Lewis of 21 July 1998 supporting P Lewis regarding Dr Millar's views on marimastat clinical trials. (Annex 6)

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Prepared 14 September 1998