3. COMPETENT
AUTHORITY INVESTIGATION
OF BRITISH
BIOTECH
3.1 The Listing Rules place a general obligation
on every listed company to disclose without delay, via the Exchange's
Regulatory News Service, details of major new developments and
changes in the company's performance, or expectations of its performance,
which are not public knowledge and which may lead to a substantial
movement in the company's share price. In the case of biotechnology
companies, the progress and results of clinical trials for key
drug programmes may have to be disseminated to the market under
this general obligation of disclosure.
3.2 The Exchange initiated its current investigation
of British Biotech following the announcement made by the Company
on 12 March 1998 of the suspension of Dr Millar. The Exchange
was alerted to this announcement through its normal monitoring
procedures.
3.3 Dr Millar has made a number of serious
allegations about the Company. He has publicly expressed his view
that the Company has, allegedly in contravention of the provisions
of the Listing Rules referred to in paragraph 3.1, misinformed
the market about the progress and prospects of key drug programmes,
namely Batimastat, Marimastat and Zacutex. In particular, he has
queried the timing and content of specific announcements made
by the Company about these drug programmes. Dr Millar has also
questioned the appropriateness of certain directors' share dealings
including those ahead of the announcement issued on17 February
1995, allegedly in contravention of certain other provisions of
the Listing Rules (see paragraph 3.5).
3.4 The Listing Rules also require the directors
of listed companies to comply with a code of practice no less
stringent than the Model Code set out in the Listing Rules, which
imposes restrictions on the freedom of directors, certain employees
and persons connected with them to deal in their company's securities
at particular times. The purpose of this requirement is to ensure
that such individuals do not abuse, or place themselves under
suspicion of abusing, price sensitive information that they may
have or be thought to have.
3.5 In the early part of 1995 the Exchange
carried out an investigation into the Company's compliance with
the Model Code. This investigation focused on the share dealings
of seven directors in advance of the announcement issued by the
Company on 17 February 1995 of a delay in one of its two clinical
trials of Batimastat. During the course of the investigation the
Company provided evidence to the Exchange, including a chronology
of events leading up to the announcement, which supported its
contention that at the time of the directors' dealings the Board
was not in possession of any unpublished price sensitive information,
particularly in relation to its Batimastat drug programme. Given
the information and explanations provided by the Company, together
with other publicly available information, the Exchange concluded
that there was no basis for disciplinary action to be taken. In
the light of new information (ie internal memoranda and details
of meetings not previously disclosed) provided since 12 March
1998 concerning the background to the 17 February 1995 announcement
the Exchange has re-opened its enquiry.
3.6 The allegations made by Dr Millar involve
complex issues of scientific judgement and judgement relating
to the market in the Company's securities. These are judgements
which have been made by the Company and by individual directors
of the Company, frequently on the basis of scientific and other
professional advice. In accordance with the principles of natural
justice the Exchange is seeking evidence from all relevant parties
in order to give them the opportunity both to comment on Dr Millar's
allegations and also to provide the Exchange with any information
which they believe is relevant.
3.7 The Exchange regularly conducts investigations
into market conduct which may have been abusive or manipulative.
These investigations can lead the Exchange to conclude that a
case should be referred to the Department of Trade and Industry
for further investigation to establish whether insider dealing
or market manipulation has occurred. At present no conclusive
evidence of abusive conduct or market manipulation of British
Biotech shares has been identified. The Exchange's investigation
in this respect is running in parallel with its investigation
of potential breaches of the Listing Rules.
3.8 Both the Company and Dr Millar continue
to co-operate with the Exchange's investigations. A decision as
to what, if any, action the Exchange proposes to take with regard
to this matter will not be made until all relevant parties have
been interviewed and all resulting information reviewed.
3.9 The Exchange has ongoing dialogue with
other relevant UK and overseas regulatory authorities about the
enquiry.
4. ASSESSMENT
OF IMPACT
ON THE
BIOTECHNOLOGY INDUSTRY
4.1 The Exchange has helped facilitate the
growth and development of the biotechnology sector in the UK and
is an important route by which UK biotechnology companies raise
equity finance. The current admission requirements for biotechnology
companies are set out in Chapter 20 of the Listing Rules. These
were introduced in December 1993 to address the specific needs
of biotechnology companies and were prompted both by demand from
UK investors and overseas competitive pressures on the London
capital market. These rules enable biotechnology companies to
raise finance by listing, notwithstanding the fact that such companies
may not have the three year revenue earning record normally required
of companies applying for listing.
4.2 The listing requirements for biotechnology
companies have been developed by the Exchange in close consultation
with relevant market practitioners and biotechnology companies.
For example, amendments made in January 1995 to these requirements
were developed by a dedicated working party specifically set up
for this task.
4.3 A measure of the success of these rules
is that, since their introduction in December 1993, approximately
£1,075 million of equity finance has been raised through
the Exchange by 27 listed biotechnology companies.
4.4 Adverse publicity for a leading participant
in any industry may have an impact on the sector as a whole. This
is particularly so for sectors which rely heavily on investor
confidence in long term research and development programmes. The
high level of reliance placed by the market on the timely and
accurate disclosure of information in such sectors is such that
there is a risk that the adverse publicity may have a more profound
effect than would otherwise be the case.
4.5 The annex sets out a graphical comparison
of the relative performance since January 1998, in terms of market
capitalisation, of British Biotech with the FTSE All Share and
UK biotechnology sector. The share prices of biotechnology companies
have underperformed relative to the rest of the market since January
1998. However it is too early to make a proper assessment as to
what, if any, long term damage to investor confidence and future
investment in the UK biotechnology sector has been caused by the
wrongdoing alleged against British Biotech, which the Exchange
continues to investigate.
7 July 1998
