British Biotech Announces Major Move to Focus On Drug Development and Extend Cash Resources.

Business Editors

OXFORD, England--(BUSINESS WIRE)--Aug. 8, 2001

British Biotech today announced a major restructuring of its business that will enable it to intensify its focus on drug development, add to its cash reserves and reduce significantly its annual cash burn.

The restructuring follows a strategic review of British Biotech's core strengths and their ability to add to shareholder value. The review concluded that British Biotech should concentrate on two key objectives: further expand its Product Portfolio and extend its cash resources.

In support of these objectives, British Biotech has signed an agreement with OSI Pharmaceuticals, Inc., a NASDAQ-listed biopharmaceuticals company (NASDAQ: OSIP), to transfer part of its pre-clinical research operations to OSI for a consideration of (pound)8.7 million (US$12.4 million) in cash. As well as boosting British Biotech's cash reserves the transaction will reduce the Company's annual expenditure by around (pound)6.0 million (US$8.6 million).

The two companies have also entered into an agreement whereby OSI acquires rights to screen British Biotech's metalloenzyme inhibitor (MEI) and other chemical libraries. British Biotech will earn a royalty on the net sales of any drugs developed and commercialized by OSI that are initially sourced from its MEI library.

The restructuring is in line with the Company's strategy to exploit its key strengths in drug development. Recent collaborations with ImmunoGen Inc., BresaGen Ltd, and Biocompatibles International plc have shown that British Biotech's strengths can be applied to third party products as well as its own. The Company intends to continue to add to its Product Portfolio from external sources, in particular from smaller and medium sized biopharmaceutical companies, including those without a European presence.

The strategic review also concluded that further research into matrix metalloproteinase inhibitors (MMPIs) and other metalloenzyme inhibitors (MEIs) would no longer be conducted independently by British Biotech. The Company will be continuing its collaborative R&D activities in these areas with Schering-Plough, Serono, and now, OSI, as well as its ongoing MEI-based Antibiotic Program. As a result, much of the Company's laboratory infrastructure and associated pre-clinical resources are now no longer required.

Under the agreement with OSI, which is expected to become effective on September 28, 2001, (`Completion') 59 British Biotech employees will transfer to OSI, along with the leases on two British Biotech properties, Windrush Court and Isis House, laboratory plant and equipment, and some computer equipment and office furniture, with a total net book value of (pound)5.0 million (US$7.2 million).

British Biotech will receive (pound)8.7 million (US$12.4 million) consideration on Completion, of which (pound)0.5 million (US$0.7 million) will be deferred until February 2002. The agreement is subject only to certain formal consents, after which British Biotech will relocate to its neighbouring freehold office and laboratory facilities in Oxford. The Company will then comprise 84 staff in drug discovery (14 employees), drug development and registration (47 employees), business development (five employees) and administration and support services (18 employees).

Impact of transaction

The transaction will result in a book profit of about (pound)3.2 million (US$4.6 million) and a positive cash effect, after costs of the transaction and relocation, of about (pound)7.5 million (US$10.7 million). Proceeds from the transaction, and the resulting savings in operating costs, will fund further development and expansion of the Product Portfolio. It will also result in a reduction of British Biotech's annual cash burn by approximately (pound)6.0 million (US$8.6 million) per annum, potentially extending the cash life of the Company to four years at current rates of expenditure.

Dr Elliot Goldstein, Chief Executive Officer of British Biotech, said: "This restructuring allows us to bring more focus to our Product Portfolio and increased benefit from our developmental expertise while retaining the key research capabilities to progress our Antibiotic Program and ongoing research collaborations. The proceeds from the transaction and cost savings will be invested in generating late-stage clinical data from the existing Product Portfolio and adding new products to the pipeline.

"In our view, the agreement secures the best possible deal for those of our employees who are moving across to OSI. On behalf of the Board, I would like to thank them for their valuable contribution to British Biotech to date. I believe they will make an equally valuable contribution to OSI's future and we wish them well."

Safe harbour statement: this news release contains forward-looking statements that reflect the Company's current expectation 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 strategy, the applicability of the discoveries made therein, the successful and timely completion of clinical studies and the uncertainties related to the regulatory process.

About British Biotech

British Biotech's strategy for creating shareholder value is to bring products to market for diseases with limited treatment options, by combining its expertise in drug development and product registration with the skills of other biotechnology and pharmaceutical companies. The Company comprises two distinct businesses: a Product Portfolio of drugs in active development, and an Antibiotic Program with the potential for multiple product opportunities.

The four principal products in clinical development are: BB-10901, a tumor activated prodrug for small cell lung cancer; E21R, a GM-CSF antagonist for acute myeloid leukaemia; BB-10153, a novel thrombolytic; and the Batimastat BiodivYsio(TM) stent for prevention of coronary restenosis. The lead compounds in its Antibiotic Program are peptide deformylase inhibitors in preclinical development for respiratory tract infections.

British Biotech currently has collaborative product development agreements with Biocompatibles International plc, BresaGen Ltd, Devco Pharmaceuticals Ltd, ImmunoGen Inc., Schering-Plough Corporation, Serono SA, and Tanabe Seiyaku. Co. Ltd. Note: Where they appear US dollar figures have been translated at the rate (pound)1=US$1.43