British Biotech
5. Most biotechnology companies seek to discover
a molecule with potential to be developed as a pharmaceutical
treatment for a particular illness or disorder. Once a potentially
useful molecule has been discovered, substantial development is
required to establish efficacy, safety and optimum delivery methods
before the drug can be commercialised or gain regulatory approval.
The development phase is risky, with no guarantee that a particular
product will ever come to market, and, compared to research, is
very expensive. Consequently many companies have opted to mitigate
the risks by selling their discovery to, or entering a joint partnership
with, an established pharmaceutical company capable of funding
the development and providing the requisite scientific skills.
British Biotech told us that some biotechnology companies had
commercialised their own products, particularly in home markets,
but no examples were given.[8]
British Biotech decided on the high-risk, and potentially high-return,
strategy of taking its cancer drugs, particularly Marimastat,
to market in the US and Europe alone while partnering a Japanese
company to bring the drugs to market there and it raised capital
through its 1996 rights issue on that basis.[9]
6. It is clear that there had been differences within
the Board of Directors from 1995 onwards — four executive
directors left the company — and, in addition, there were
particular differences between Drs McCullagh and Millar, the latter
of whom was not a main board director. In 1995 they disagreed
over whether phase III clinical trials on Batimastat, an injectable
anti-cancer drug, should be halted and, once they had, over whether
they should be re-started; over the tone of the press release
announcing that the trials had been halted, which Dr Millar believes
portrayed an over-optimistic picture;[10]
over the tone and content of press releases regarding the progress
of clinical trials of Marimastat, an orally delivered anti-cancer
treatment; and over British Biotech's potential pancreatitis treatment,
Zacutex. There were also apparent differences from time to time
over the designation and nature of, and the interpretation of
data from, clinical trials.[11]
The net result of Dr Millar's more pessimistic interpretation
of the data from clinical trials, and his perhaps more cautious
attitude to corporate strategy, led him to the conclusion that
"the Board were running a business plan consistent only with
extreme and unfounded optimism".[12]
Dr Millar summarised his concerns by telling us that "my
view is that a business `charade' had been built up and was preventing
acknowledgement of data which differed from previous overpromises.
This in turn, perverted the decision making process so that projects
were no longer managed in their best long term interests. In effect
the business charade had become bigger than the science".[13]
7. In January 1995 when, according to Dr Millar,
the future of the Batimastat trials was already in question, several
British Biotech board directors sold a substantial number of shares
in the company a month in advance of the public announcement that
the Batimastat trials had been halted. The propriety of share
dealing is a matter not for us but for the London Stock Exchange.
It investigated these share dealings in 1995 to see if they contravened
the code of practice governing directors' share dealings. At that
time the Stock Exchange concluded "that there was no basis
for disciplinary action",[14]
but it has recently re-opened its investigation in response to
Dr Millar's disclosure of information and allegations.
8. Dr Millar's concerns may have been, in part and
for a limited time, based on information that was not available
to others. In the period from November 1996 to April 1997 Dr Millar
"unblinded" data from the on-going clinical trials on
Marimastat and Zacutex.[15]
Dr Millar claims that he verbally informed Dr Lewis, his immediate
line manager, that he was performing analysis on unblinded data
at the time, in the full expectation that his pessimistic findings
would be passed on to the Chief Executive, Dr McCullagh.[16]
Dr Lewis denies this.[17]
Dr Millar's unblinding of clinical trials was made known to Dr
McCullagh in May 1997 when Dr Millar informed him personally.[18]
The unblinding of clinical trials is ethically questionable: although
permissible in certain circumstances and desirable if patient
safety is thought to be at risk, a determination of whether justified
in any particular circumstances is a matter for experts. It is
for the drug regulatory bodies — the Medicines Control Agency
in the UK, the European Agency for the Evaluation of Medicinal
Products in Europe and the Food and Drug Administration in the
US — to determine whether unblinded trials have been invalidated
for regulatory purposes.
9. Dr Millar was not the only member of staff at
British Biotech to question corporate strategy. Dr Lewis, for
instance, told us he had "a series of disagreements with
the Chief Executive ... about his strategy for the company"
and that "Dr McCullagh had hugely ambitious plans".[19]
Dr Lewis' reaction to the failure of his attempts to moderate
corporate strategy was to offer his resignation in January 1997.
Dr Millar's was to take an opportunity offered to inform British
Biotech's second largest shareholders, Perpetual Investment Management
Services, about his concerns, which he did on 18th February 1998.
Dr Millar's actions in briefing Perpetual, while certainly unusual,
seem more the product of difficulties at British Biotech than
the origin of them.
10. Dr Millar makes serious allegations concerning
share dealing, news management and corporate strategy. We welcome
the investigations which are currently underway at the Stock Exchange
and commend the evidence we have received to it.
Implications
for the Biotechnology Industry
11. There are clearly inherent difficulties for small
drug discovery companies in conducting the full series of pre-clinical
and clinical trials which is necessary before a drug can be brought
to market without the financial and scientific backing of a larger
partner. Creating a new fully integrated pharmaceutical company
is an ambitious objective with high risks and potentially high
rewards. Decisions on whether to support such a strategy must
be taken by directors and investors alike, cognisant of the risks
involved.
12. Share prices in biotechnology companies are very
volatile. Most biotechnology companies have no assets other than
the cash which they have raised from investors and, at the outset,
have no products to sell. Thus decisions on whether or not to
invest must be based on judgements about the potential of scientific
intellectual property and scientific expertise and the capability
of the company's management to turn such scientific assets into
useful and marketable products. Furthermore, as Perpetual pointed
out "diseases like Cancer, Alzheimer's and AIDS, give rise
to strong emotions" which serve to increase market speculation.[20]
Investment in the biotechnology sector is therefore high risk
and consequently, as Mercury Asset Management told us, "The
investment community attaches a risk premium to such ventures
[and] this level of the risk premium inevitably fluctuates with
events". [21] This
volatility, together with the dependence of the company on success
in clinical trials, could put scientific objectivity at risk if
researchers are put under pressure to produce or interpret results
in a manner which will maintain investor confidence and share
prices. Thus, in an environment where subjective judgements
and sentiment are so important in determining share price and
company value, and where investors are to a large degree dependent
upon the company to inform those judgements, "the accuracy,
precision and objectivity of information released ... is vital".[22]
13. We were surprised to learn that not all biotechnology
companies in the UK make use of an external scientific advisory
board to validate clinical trials.[23]
Such a device could serve not only as a source of valuable scientific
expertise but also as a means of protecting scientific objectivity.
We recommend that the Government, through the regulatory system,
encourage all biotechnology companies to make full use of external
scientific expertise and advice.
14. During the course of our inquiry concerns have
also been raised about a possible conflict between the needs of
investors for regular progress reports on drug development and
the regulatory prohibitions against promotion of drugs before
they are licensed.[24]
British Biotech told us "in meeting the requirements of the
regulatory agencies, a biotech company can frequently face conflict
with the financial requirements for news flow and information".[25]
Dresdner Kleinwort Benson, while unconvinced that there was a
conflict, in the strict sense, accepted that appropriate news
management was "certainly a problem for biotech companies".[26]
We recommend that the Medicines Control Agency and the European
Agency for the Evaluation of Medicinal Products work with the
Stock Exchange to resolve any potential conflicts between their
respective regulatory regimes affecting the biotechnology sector.
15. When hi-tech companies are first launched it
is often with the assistance of venture capitalists who place
specialists on the board as non-executive directors. Once the
company has become public, these specialists are gradually replaced
with the company's own appointees. Several witnesses to our inquiry
stressed the importance of ensuring that there were, among the
non-executives directors of biotechnology companies, sufficient
people who had direct experience of drug development.[27]
From the evidence before us we have no grounds to make any criticism
of individual non-executive directors at British Biotech but it
seems obvious to us that biotechnology companies should be
able to call on appropriate expertise for all areas of company
activity and strive to reach a balance among their non-executive
directors between those who can offer crucial business development
expertise and those who are familiar with the risks and vicissitudes
of drug development. This does not seem to have been the case
at British Biotech when the board was altered after flotation
and probably contributed to its problems.
16. Witnesses were divided in their opinions over
whether our initial fears that the British Biotech saga would
serve to undermine investor confidence in the entire biotechnology
sector were well founded. Although so far this year the biotechnology
sector's performance has been below the average for the stock
market as a whole,[28]
it is difficult to attribute the cause of general market movements
to any particular events and, as Dresdner Kleinwort Benson pointed
out, "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".[29]
As the London Stock Exchange agreed, it is too early to determine
precisely what, if any, will be the long-term impact on investor
confidence and future investment in the biotechnology sector.[30]
17. The biotechnology industry, as a leading research
based industry, will always be of interest to us. We will follow
the fortunes of British Biotech, under the leadership of a new
Chairman and a new Chief Executive, and shall continue to report
on issues affecting the biotechnology sector as appropriate.
1 Average share prices in the biotechnology sector fell
by some 40% during 1997. By the end of 1997 British Biotech shares
stood at around £1. Back
2 Eg
Financial Times, 21 May 1998. Back
3 HC
888-ii (Session 1997-98) (Memorandum from Perpetual Investment
Management Services, Annex). Back
4 Eg
The Times, 16 March 1998. Back
5 British
Biotech News Release, 20 April 1998 Back
6 HC
888-i (Session 1997-98) (Memorandum from Dr Millar, Annex).
The Financial Times published an edited version of this
letter on 29th April 1998. Back
7 HC
888-II (Session 1997-98), Appendix 3, para 4.4. Back
8 HC
888-i (Session 1997-98) (Supplementary Memorandum from British
Biotech, para B3). Back
9 Q.
104. Back
10 HC
888-i (Session 1997-98) (Affidavit from Dr Millar, paras 25-27);
Q. 58; British Biotech, Circular to Shareholders, pp20-22. Back
11 HC
888-i (Session 1997-98) (Affidavit from Dr Millar, paras 32 and
60). Back
12 HC
888-i (Session 1997-98) (Memorandum from Dr Millar, Annex). Back
13 HC
888-i (Session 1997-98) (Memorandum from Dr Millar, para 2). Back
14 HC
888-II (Session 1997-98) Appendix 3, para 3.5 Back
15 Many
clinical trials involve comparing the effects of drugs under development
against an existing treatment and a placebo. In double-blinded
studies, neither patients nor anyone else involved in the trial
is aware of which of the three possible treatments a particular
patient is receiving thus ensuring that researchers and others
involved in the trials cannot be influenced in their trial management
or data assessment and therefore cannot bias results. Back
16 HC
888-i (Session 1997-98) (Memorandum from Dr Millar, Annex). Back
17 QQ.
389-90. Back
18 Q.
55. Back
19 HC
888-iii (Session 1997-98) (Memorandum from Dr Lewis). See
also HC 888-II, Appendix 5. Back
20 HC
888-ii (Session 1997-98) (Memorandum from Perpetual Investment
Management Services, para 4.5). The New York Times recently
carried a front page story about a product which suggested that
it was successful in reducing the blood supply to cancer tumours
in mice, thus shrinking the tumours. The company's share price
rose dramatically but it cautioned investors about over optimism
on a product that, at best, would not reach the market for many
years. Over the week the company's shares rose from $12 to over
$80 and then fell back to $33. Back
21 HC
888-II (Session 1997-98), Appendix 4, para 16. Back
22 HC
888-ii (Session 1997-98) (Memorandum from Perpetual Investment
Management Services, para 4.5). Back
23 HC
888-II (Session 1997-98), Appendix 5. Back
24 Eg
HC 888-i (Session 1997-98) (Supplementary Memorandum from British
Biotech, para A1). Back
25 HC
888-i (Session 1997-98) (Supplementary Memorandum from British
Biotech, para B8). Back
26 HC
888-ii (Session 1997-98) (Memorandum from Dresdner Kleinwort Benson). Back
27 Eg
Q. 496; HC 888-II (Session 1997-98), Appendix 5. Back
28 HC
888-II (Session 1997-98), Appendix 3, para 4.5. Back
29 HC
888-ii (Session 1997-98) (Memorandum from Dresdner Kleinwort Benson). Back
30 HC
888-II (Session 1997-98) Appendix 3, para 4.5. Back
