Chairman’s statement at Annual General Meeting
04 November 2002
The Chairman of British Biotech plc (LSE: BBG; NASDAQ: BBIOY), Mr Christopher Hampson made the following statement to shareholders at today's Annual General Meeting:
"British Biotech's business is to develop new medicines for poorly-treated diseases, a process which takes many years and costs millions of pounds. Few of the promising new pharmaceutical products that start clinical trials make it through the development and regulatory processes and reach the market. However, drug development has the potential to be highly rewarding; many successful businesses have been built on the successful registration of a single new drug.
The business environment has become much more difficult over the last 12 months. Stock markets across the world have fallen substantially with high-tech and biotechnology companies being particularly badly hit. British Biotech has been no exception and the Board is frustrated, as I am sure you all are, by the low value the market ascribes to the Company. I sympathise with all shareholders for the losses you have suffered.
The combination of the weak stock markets and the long-term, capital-intensive nature of drug development, during which the majority of products fail, has resulted in biotech companies, with early-stage portfolios, being viewed as unattractive by investors. This is true of British Biotech today as shown by Friday's share price of 4.5p. Notwithstanding current investor sentiment, management remains focused on its core strategy and the delivery of improved shareholder value.
I would now like to set out the key features of British Biotech today and explain the Board's continuing strategy for creating shareholder value which is based on two items: firstly, progressing its product portfolio and secondly, participating in M&A activity.
Let me firstly deal with the product portfolio:
This product portfolio currently consists of four drugs in clinical development which were discovered both at British Biotech and by collaborators. In numerical terms this is the same as last year with two product failures, E21R and the Batimastat BiodivYsio® stent, being balanced by the addition of BB-83698 and MG-98. This demonstrates the high product failure rate inherent in our business, which I alluded to earlier, and the wisdom of the Company's deliberate steps to address this risk through adopting the strategy of collaborating to develop products discovered by other companies.
E21R was discontinued after British Biotech generated new pre-clinical data which failed to support the rationale for developing the product. The Batimastat BiodivYsio® stent was discontinued after a clinical trial showed that the drug-coated stent behaved in a similar manner to the uncoated stent. These failures were disappointing but the decisions demonstrate management's determination to invest only in products that meet pre-defined success criteria and so manage our resources effectively.
The four products actively progressing in the portfolio are:
BB-10153, which prevents and dissolves blood clots and was discovered in-house at British Biotech. This product has the potential to overcome the major risk of existing drugs, that of internal bleeding. Following earlier completion of Phase I studies, manufacturing capability was established during the year and BB-10153 has recently started a Phase II trial in heart attack patients under the auspices of the Thrombolysis in Myocardial Infarction Group in the USA. BB-10901, a treatment for small cell lung cancer was discovered by ImmunoGen. This is currently in a Phase I weekly-dosing study in the USA, designed to establish a maximum tolerated dose, which is nearing completion. During the year, a second Phase I study investigating daily treatment of BB-10901 was started to investigate the use of the drug when given more frequently. Both studies are designed to evaluate the safety, tolerability and pharmacokinetics of BB-10901.
MG-98, is a new product in the portfolio which was acquired during the year from MethylGene. This is an antisense product for cancer which is currently in Phase I trials in North America. British Biotech will expand the development programme for this drug by starting a further Phase I study in solid tumours later this year.
BB-83698, is the first product to emerge from British Biotech's antibiotic research programme targeted at discovering a new class of antibiotics based on inhibitors of the metalloenzyme, peptide deformylase which is being co-developed with our partner, GeneSoft. This area of research is being pursued by a number of companies and BB-83698 was the first of this potential new class to clinical trials when a Phase I study in healthy volunteers started last month.
Importantly, for all of the products in the portfolio, British Biotech retains commercialisation rights in various territories. We anticipate that value will be created for shareholders as results from late-stage clinical trials emerge over the next three years.
Our main research programmes are concentrated on discovering new antibiotics and treatments for inflammatory disease and both have made good progress. During the year we entered into a collaboration with the specialist anti-infective company, GeneSoft, to discover and develop a range of new antibiotics to follow on from BB-83698. Last week we extended our research collaboration with Serono for a further year with the objective of producing oral anti-inflammatory compounds for clinical testing. Also, as part of the Government's biodefence initiative, we have entered into a collaboration with the Defence Science & Technology Laboratories at Porton Down to investigate potential treatments for the lethal anthrax toxin.
Secondly, I would like to comment on your Company's continuing strategy regarding M&A activity.
At 30th September 2002, British Biotech had approximately £43m of cash and we will update the markets further when we release our interim results towards the end of November. We will continue to manage our cash prudently, investing only in products and programmes which have a strong rationale backed by outside experts and drug regulatory agencies, and by pursuing all opportunities to sell non-core assets. This cash balance puts us in a strong position both to create value from the product portfolio and to participate in consolidation opportunities within the UK and elsewhere.
We will continue to seek strategic opportunities to develop the business and vigorously pursue those that the Board believes will increase shareholder value. This has been the Board's main focus over the last 12 months, following completion of the sale of preclinical operations to OSI. During this period, together with external advisers, management has conducted a systematic analysis of biotech companies across Europe and North America. The aim has been to identify complementary businesses which, if combined with British Biotech, would create value for you, the shareholders.
This analysis led to the negotiations with MorphoSys announced in September this year. The Board called off these negotiations, after detailed due diligence, when it became clear that improved shareholder value could not be achieved. The Board continues to be open to possible corporate transactions which combine British Biotech with companies with complementary strengths and which would deliver value to shareholders. These complementary businesses may be in the UK or wider afield in the rest of Europe or North America.
Moving on, you may have heard about a threatened law suit by past and present shareholders represented by Class Law. Despite speculation in the press and elsewhere which, I might add, has been going on for nearly two years, I can confirm no formal legal proceedings have been brought against British Biotech.
Finally, I would now like to turn to the question of management. Elliot Goldstein has been our Chief Executive for four years. This has been a difficult period for the Company and, in my view, Elliot and his executive team have done a commendable job dealing with the issues they inherited. The product portfolio has been expanded, cash burn has been reduced and brought under tight control, the Company has been restructured and its drug development expertise is well recognised across the industry. Nevertheless, despite these efforts and the Company's relative financial strength and excellent staff, success has proved elusive and the market continues to ascribe a low value to the Company.
In the circumstances, the Board has concluded that new leadership is appropriate and Elliot Goldstein has agreed to step down as Chief Executive and from the Board effective at the end of this meeting. We are initiating a search for a replacement and Tim Edwards, currently Chief Operating Officer, has been appointed acting Chief Executive with effect from the end of this meeting.
I would like to pay tribute to Elliot for his leadership. He has worked with energy and drive to restructure the Company, establishing a good platform for the future. He has been tireless in seeking ways to enhance shareholder value and the Board is very appreciative of all he has done. We wish him well for the future.
In conclusion, I firmly believe that British Biotech has the capabilities and resources to succeed, and I am confident that it will do so".
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This news release contains forward-looking statements that reflect the Company's current expectations regarding future events. Forward-looking statements involve risks and uncertainties. Actual events could differ materially from those projected herein and depend on a number of factors including the success of the Company's research strategies, the applicability of the discoveries made therein, the successful and timely completion of clinical studies and the uncertainties related to the regulatory process.
