British Biotech plc First quarter results 1998/99 for the period ended July 31, 1998.

--(BUSINESS WIRE)--Sept. 23, 1998-- Key points

- New Chairman and Chief Executive appointed.

- Marimastat program continues to progress; four pivotal trials have completed their recruitment stage.

- Subsequent to the end of the first quarter, Phase II trials of marimastat began in Japan and US$5.0 million payment received from Tanabe.

- Study 128 (marimastat monotherapy in pancreatic cancer) and Study 215 (Zacutex acute pancreatitis) are continuing. If these studies are positive, the impact of unblinding will be determined as part of the regulatory review process.

- Phase III trial of Zacutex commenced in a second clinical condition, ERCP-induced pancreatitis.

- 120.7 million pounds (US$196.7 million) cash at July 31, 1998.

- Overall expenditure was 12.0 million pounds (US$19.6 million) with a loss after tax of 9.2 million pounds (US$15.0 million), both in line with plan. Underlying cash utilization by operations of 9.0 million pounds (US$14.7 million) with benefits from cost-saving measures beginning to accrue.

Mr John Raisman, British Biotech's Chairman, said, "As I prepare to step down as Chairman, I am very pleased to be able to report to shareholders that 1998/99 has started well, particularly after the disappointing end to 1997/98. Marimastat is now being tested in cancer patients not only in Europe and North America but also in Japan. I feel confident that British Biotech will now begin to move forward again, building on the high quality of its science and the strength of the new leadership of Chris Hampson and Elliot Goldstein."

Dr Keith McCullagh, who will step down as British Biotech's Chief Executive at today's AGM, added, "I should like to emphasise my personal belief in the strengths and potential of our Company. I wish it, the new management and, in particular, Dr. Elliot Goldstein, every future success. I would like to extend my thanks both to my fellow Directors and to all the staff of British Biotech for their commitment and efforts over many years. I would also like to thank the shareholders for the support they have given the Company."

This news release contains forward-looking statements which 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.

British Biotech plc

First quarter results 1998/99 for the period ended July 31, 1998

Introduction

The start of the 1998/99 financial year has enabled the Company to begin to move forward again, after the disappointing events in the final quarter of 1997/98. The operating plan and budget implemented in May 1998 has provided a clear framework in which to manage the business. The management team to lead the business has been identified, marimastat has begun trials in cancer patients in Japan and a trial has commenced of Zacutex in a second clinical condition, ERCP-induced pancreatitis.

Product review

Late stage development compounds

Marimastat

Marimastat, the first of a new class of potential oral anti-cancer agents, is targeted at the treatment of a range of solid tumors. Given the product's broad potential, the Company is undertaking pivotal trials in six different cancer types. These trials are being conducted in Europe and North America and are intended to provide information on the efficacy and safety of marimastat in each tumor type, with data accumulating progressively over the next three years. The pivotal trial program under way includes four trials which have completed recruitment (monotherapy in pancreatic cancer, combination therapy in pancreatic cancer, glioblastoma and small cell lung cancer). None has yet reached its pre-determined end point which in these four trials is measured by patient survival. Patients therefore continue to be monitored in all trials and the Company expects the first Phase III results to be available during 1999.

The first trial to report is anticipated to be Study 128 which will compare the survival of patients with advanced pancreatic cancer receiving one of three dose levels of marimastat to patients receiving gemcitabine, the best available chemotherapy for this cancer. Pancreatic cancer is widely regarded as one of the most aggressive cancers and is therefore one of the most demanding benchmarks against which marimastat is being tested. This study is also designed to produce important data as to dose response and long term survival.

The next study to report is expected to be a second trial in advanced pancreatic cancer which is running six to nine months behind Study 128. In this "combination" trial, half the patients receive marimastat plus gemcitabine and half receive gemcitabine plus placebo. Combinations of different therapies are widely used in treating cancer and such monotherapy and combination trials will assess whether treating patients with marimastat together with chemotherapy is more effective than giving either therapy alone.

In Japan, the clinical development of marimastat is being undertaken by Tanabe Seiyaku Co., Ltd. (Tanabe) which licensed marimastat from British Biotech for the Japanese market in 1996. Following the completion of Phase I trials in healthy volunteers, Tanabe commenced the first of a planned series of Phase II trials in cancer patients in August 1998. A Phase II combination trial is under way in advanced gastric cancer patients with further trials planned in selected tumor types. The commencement of Phase II trials by Tanabe has resulted in a milestone being met and a payment being received by British Biotech. (See 'Financial review' below.)

Exploratory discussions are continuing with potential alliance partners to support and supplement the marimastat development program and undertake marketing in North America, the largest pharmaceutical market in the world.

Zacutex

Zacutex is an injectable treatment which British Biotech is investigating as a potential treatment for acute pancreatitis. An international Phase III trial (Study 215), which has patient survival as its primary end point, is on target to complete recruitment of 1,500 patients by the end of 1998. If suitable evidence of efficacy exists, it will provide the basis for the Company's submission of a Marketing Authorization Application in Europe and a New Drug Application in the USA.

Zacutex is a potent inhibitor of platelet activating factor which British Biotech has investigated in a range of inflammatory diseases. The Company has now begun a Phase III trial of Zacutex used prophylactically to protect patients from developing pancreatitis when undergoing a diagnostic procedure known as ERCP (endoscopic retrograde cholangio-pancreatography). ERCP is usually an out-patient procedure widely used in the diagnosis and treatment of a broad range of biliary and pancreatic diseases. It involves the infusion of X-ray contrast media into the common bile duct or the pancreatic duct prior to radiography and, although it is generally well tolerated, acute pancreatitis is a well recognized complication, occurring in up to 10 per cent of patients. This study will assess the ability of Zacutex to prevent acute pancreatitis developing in association with ERCP.

The 1,800 patient, double-blind, placebo-controlled, Phase III study under way has the clear cut primary end point of acute pancreatitis, induced by the ERCP procedure, which can be rapidly assessed. This ERCP study complements the 1,500 acute pancreatitis study, which is nearing completion, and provides a second potential target indication for Zacutex. A second pivotal ERCP trial is likely to be necessary to form a registration package for ERCP-induced pancreatitis.

The Company is considering seeking marketing alliances or out-licensing for Zacutex in North America.

Early stage development compounds

BB-3644

BB-3644 is a combined inhibitor of tumor necrosis factor and matrix metalloproteinases and could potentially be useful in a range of inflammatory diseases and cancer. As previously announced, results from the Phase I program indicate that BB-3644 is orally bioavailable. The long-term toxicology program, which is designed to demonstrate that BB-3644 is safe for use in patients over an extended period is continuing. A decision on the disease indication(s) to be investigated in Phase II trials will be taken once these studies are completed towards the end of 1998.

BB-10153

BB-10153 is an innovative, genetically engineered protein which has shown clot-dissolving and anti-thrombotic properties in preclinical models. This protein has potential use in a range of cardiovascular diseases including heart attack and stroke. Results from the ongoing Phase I program are expected in late 1998. During the first quarter, a milestone was achieved with the demonstration by British Biotech of an economically viable production route for BB-10153. This resulted in 0.4 million (US$652 million) being payable by Japan Tobacco, BB-10153's partner in Japan, to British Biotech (see 'Financial review' below). Given the scale of the cardiovascular clinical program which would need to be conducted, the Company has decided to seek a partner with expertise in this area to develop and market BB-10153 in the rest of the world.

Regulatory matters Unblinded trials

In August 1998, the Company announced that it would be continuing Study 128 (marimastat monotherapy in pancreatic cancer) and Study 215 (Zacutex acute pancreatitis) and that it is satisfied that there are no safety issues which would require these clinical trials to be stopped.

The Company held discussions with the US Food and Drug Administration (FDA) and European Medicines Evaluation Agency (EMEA) regarding the improper unblinding of these two clinical trials. These discussions were initiated by the Company following a third party regulatory audit which concluded that Dr Millar, the Company's former Director of Clinical Research, had unblinded Studies 128 and 215 on several occasions in breach of good clinical practice and the Company's standard operating procedures. The audit report prepared by the third party was provided to the regulatory authorities. While the Company believes that the information gained by unblinding the two studies has not been used to affect the conduct of the studies, the final impact of the improper unblinding can only be definitively assessed by the drug regulatory authorities as part of the regulatory review process.

Other

The US Securities and Exchange Commission (SEC) inquiry into marimastat press releases issued by British Biotech in 1995 and 1996 continues. Counsel for British Biotech have held several discussions with members of the SEC staff regarding both legal and factual aspects of the SEC inquiry. Those discussions are ongoing. The Company will inform shareholders promptly as material developments occur in this matter.

The London Stock Exchange inquiry is continuing. The Company has provided information on a number of matters and is co-operating fully with the inquiry.

In August 1998, the House of Commons Science and Technology Select Committee published a report on British Biotech. The report made no specific criticisms of the Company, but formulated general recommendations about matters relating to the biotechnology sector.

Financial review

The loss, before and after tax, for the first quarter of the 1998/99 financial year was 9.2 million pounds (US$15.0 million)(1997/98: 9.0 million pounds), as planned. Turnover of 504,000 pounds (US$821,520) in the quarter (1997/98:257,000 pounds) arose from two sources. During the quarter, the Company met the requirements for the next milestone under the agreement with Japan Tobacco to develop BB-10153 and, as a result, 400,000 pounds (US$652,000) was invoiced; in addition, the ongoing biological research agreement with R&D Systems resulted in income of 100,000 pounds (US$163,000). Both these amounts were received after the end of the quarter. Overall expenditure for the quarter was 12.0 million pounds (US$19.6 million) (1997/98:12.1 million pounds). The benefit of cost-saving measures announced in May 1998 is now beginning to accrue, with costs in the first quarter 1998/99 some 2.4 million pounds (US$3.9 million) or 15 per cent below the last quarter of last year.

Net interest receivable was 2.3 million pounds (US$3.7 million)(1997/98:2.8 million pounds) reflecting the reduced levels of average cash balances held during the quarter. The cash utilized by operations during the quarter was 11.8 million pounds (US$19.2 million)(1997/98:10.4 pounds million). The outflow in the quarter includes the payment of 1.7 pounds million (US$2.8 million) in respect of the provisions made at April 30, 1998 to cover the redundancy program and the costs associated with the shareholders' circular. The cash outflow is also increased due to a delay in the receipt of VAT recoverable of 1.1 million pounds (US$1.8 million) until after the end of the quarter. On a comparable basis, the cash utilized by operations is therefore 9.0 million pounds (US$14.7 million) in the quarter, well below last year's levels. At the end of the quarter, cash reserves amounted to 120.7 million pounds (US$196.7 million).

Following the end of the quarter, the Company's cash reserves have also benefited from a milestone payment of US$5.0 million ($4.5 million net of withholding tax) from Tanabe following the start of Phase II trials with marimastat in Japan.

The Board

In August 1998, British Biotech announced the appointment of both a new Chairman and a new Chief Executive to lead the Company through its next phase of development.

Mr Christopher Hampson CBE will succeed Mr John Raisman CBE as non-executive Chairman when he retires from the Board on September 30, 1998. Mr Hampson was appointed a non-executive director of the Company with effect from August 4, 1998. Mr Hampson, aged 66, has had a distinguished international business career including as a director of ICI Plc. He is currently Chairman of RMC Group plc and a non-executive director of several companies including BG plc.

Dr Elliot Goldstein will succeed Dr Keith McCullagh as Chief Executive Officer following today's Annual General Meeting (AGM). Dr Goldstein, aged 47, joins British Biotech from SmithKline Beecham, where he was Senior Vice President and Director Worldwide Strategic Product Development. Dr Goldstein qualified as a doctor in 1979 and has worked in the pharmaceutical industry in Europe and the United States for the last 18 years. His experience of drug development and commercialization mirrors the Company's current focus on research and development with the aim of bringing drugs through regulatory approval to market.

Dr Pam Kirby will step down as Commercial Director and retire from the Board on September 30, 1998. Her duties will be assumed by Dr Goldstein as part of his overall responsibilities as Chief Executive Officer. Additionally, Mr Henny de Ruiter, a non-executive director, will retire from the Board at today's AGM.

Outlook

Under the leadership of the new management team, and with the support of a clear operating and financial plan, British Biotech has the resources and management to take the Company forward successfully. The Company remains a world leader in the field of matrix metalloproteinases and has a strong position in the broader field of proteinases and their inhibition from which to build its product pipeline. Progressing the drug development programs remains a priority for the Company in order to assess the effectiveness of the drugs currently undergoing trials. It is from these foundations that the Company will seek to build long-term value for shareholders.

This news release contains forward-looking statements which 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.

         Unaudited consolidated profit and loss account
              for the quarter ended July 31, 1998
                                               1998              1997
                                          pounds in 000 pounds in 000
Turnover                                            504        257
Research and development expenditure                (10,149)   (10,038)
Administrative expenditure                         (1,881)    (2,031)
Operating loss                                        (11,526)   (11,812)
Interest receivable                                  2,406      2,893
Interest payable                                    (91)      (102)
Loss before tax                                  (9,211)    (9,021)
Taxation                                            (19)       (17)
Loss after tax                                         (9,230)    (9,038)
Loss per share (note 1)                          (1.4p)     (1.4p)
         Statement of total recognized gains and losses
              for the quarter ended July 31, 1998
                                                   1998       1997
                                           pounds in 000 pounds in 000
Loss for the quarter                                 (9,230)    (9,038)
Translation of overseas subsidiary
financial statements                                     (6)        (1)
Total losses recognized for the quarter          (9,236)    (9,039)
              Unaudited consolidated balance sheet
                                                July 31,    April 30,
                                                  1998              1998
                                           pounds in 000 pounds in 000
Tangible fixed assets                                36,813            37,361
Current assets
Stocks                                                    76                75
Debtors                                          4,024             2,768
Cash at bank and in hand                       120,744           132,762
                                               124,844           135,605
Creditors due within one year                       (11,060)    (13,097)
Net current assets                               113,784           122,508
Total assets less current liabilities               150,597           159,869
Creditors due after one year                        (2,632)     (2,700)
Net assets                                       147,965           157,169
Capital and reserves
Share capital                                        33,018            33,013
Share premium                                       296,123           296,096
Other reserve                                        10,008            10,008
Profit and loss account                       (191,184)   (181,948)
Shareholders' funds                               147,965           157,169
           Unaudited consolidated cash flow statement
              for the quarter ended July 31, 1998
                                                  1998              1997
                                           pounds in 000 pounds in 000
Cash outflow from operating activities               (13,613)     (8,006)
Return on investments and servicing of
finance                                          2,194             3,215
Taxation                                           (16)        (27)
Capital expenditure and financial investment          (384)     (5,601)
Cash utilized by operations                       (11,819)    (10,419)
Management of liquid resources                         9,000            12,350
Financing                                           (59)        260
(Decrease)/increase in cash in the period        (2,878)      2,191
Reconciliation of net cash flow to
movement in net funds
(Decrease)/increase in cash in the period        (2,878)      2,191
Cash used to decrease debt and lease financing            91                90
Cash used to decrease liquid resources                (9,000)    (12,350)
Exchange adjustment                                    (6)         (3)
Movement in net funds in the period               (11,793)    (10,072)
Net funds at May 1                               129,602           179,896
Net funds at July 31                               117,809           169,824
Notes

     1. Losses per share are based on the loss attributable to
shareholders of 9.2 million pounds (US$15.0 million) (1997/98: 9.0
million pounds) and on 660 million (1997/98: 658 million) shares,
being the weighted average number of shares in issue for the quarter.
     2. The directors do not propose a dividend for the period.
     3. The financial information on the Group set out above does not
constitute statutory accounts within the meaning of Section 240 of the
Companies Act 1985. The financial information for the year ended April
30, 1998 is an extract from the Group's statutory accounts which will
be delivered to the Registrar of Companies; the report of the auditors
on these accounts was unqualified and did not contain a statement
under Section 237 (2) or (3) of the Act.
     4. Zacutex is a registered trade mark of British Biotech
Pharmaceuticals Limited.
     5. Where they appear, US dollar figures were translated on the
basis of $1.63=1 pound.
Chairman's statement at AGM
     The Chairman of British Biotech, John Raisman, made the following
statement at the Annual General Meeting of Shareholders of the Company
today:
     "This is my last Annual General Meeting as Chairman and as a
Director of your Company before handing over to Chris Hampson from
October 1st and I regret that the financial year on which we are
reporting today was a disappointing one for your Company and its
shareholders. I should like to emphasize, however, that the
fundamental strengths possessed by your Company remain and we
anticipate further progress in our research and development program
during the current year. Your Board is also very pleased to have
recruited two such highly qualified individuals as Chris Hampson and
Elliot Goldstein as our future Chairman and Chief Executive,
respectively. Their decisions to accept the Board's invitations to
take up these appointments do, I believe, represent a positive
endorsement of your Company's intrinsic strengths.
     Looking back on the 1997/98 financial year, our greatest
disappointment was the decision by the European Agency for the
Evaluation of Medicinal Products, known as the EMEA not to award a
marketing approval for Zacutex on the basis of the Phase III study
results submitted to it but to await the outcome of the second Phase
III trial still in progress, known as Study 215, as the potential
basis for a new marketing application. This decision eliminated the
possibility of a first income flow from product marketing for the
Company in the current financial year.
     In January 1998, your Board decided that shareholder value was
best served by seeking partners in the US for the commercialization of
marimastat, as well as partners for the development and marketing of
our potential cardiovascular drug, BB-10153. In addition, the Company
is considering seeking marketing alliances or out-licensing for
Zacutex in North America. The objective of these collective decisions
is to strike the best balance for shareholders between maximizing the
potential revenue flow from the products and securing an adequate
degree of financial, technical and commercial underpinning for their
development and marketing. As we emphasized in the Report and
Accounts, our strategy is designed to ensure that your Company's
existing resources remain sufficient to fund its planned development
and marketing programs over the next three years, even without revenue
from the external partnerships we are currently seeking. I should
stress that such partnerships will be concluded only on a basis which
your Board believes will add real commercial benefit to the Company
and thus to shareholders. Discussions with potential partners are in
progress and shareholders will be informed of any agreements as soon
as we are able to do so.
     With regard to our research and development programs, I should
like to draw shareholders attention to two developments which we have
announced in the First Quarter statement. Firstly, Tanabe Seiyaku, our
Japanese partner for marimastat, has now commenced the first of a
series of Phase II trials in cancer patients in Japan with further
trials planned in selected tumor types. This has resulted in a
milestone being met with a resultant payment of $5.0 million to
British Biotech. Secondly, your Company has commenced a Phase III
trial of Zacutex in a second potential indication, as explained in the
First Quarter's announcement.
     At this stage, I feel it is appropriate to say to shareholders
that your Board very strongly believes that no impropriety or improper
conduct of any description has occurred, either by your Company or by
individual Directors. I say this on the basis of extensive due
diligence which has been conducted by and on behalf of the Board.
Despite my clear statement to this effect in the circular to
shareholders in May and on other occasions, I am afraid that in much
of the extensive media coverage the Company has received over recent
months, it may not always have been easy for shareholders to
distinguish allegations from facts. I greatly regret the damage this
has, in my view, quite unjustifiably caused to the reputation of both
the Company and its Chief Executive, Dr McCullagh. I hope that both
will be fully restored before too long.
     Finally, I should like to refer to the executive Directors who
are leaving the Company. During the selection of our new Chief
Executive, the Board determined, with the agreement of Dr Pam Kirby,
that the primary focus of our Company for the immediate future would
be research and development and bringing drugs through regulatory
approval to market. Given this focus, Pam Kirby has stepped down as
Commercial Director and will retire from the Board on September 30th.
The duties of Commercial Director will in future be included among Dr
Goldstein's responsibilities. Pam has been a valued and respected
member of both the Executive Management and the Board. On behalf of
shareholders, I should like to wish her every future success.
     Keith McCullagh was a founder of British Biotech and, I believe
it is fair to say, the inspiration behind your Company. He is leaving
the board of the Company that he has played such a major role in
building because he believes his resignation will better enable your
Company to focus on developing its business without the distraction of
undue media attention and other publicity. The Company will, of
course, honor all obligations in respect of his contract which is a
rolling one year contract. In addition, a one off payment will be made
to his pension fund to cover a shortfall in pension contributions
relating to past service. I am happy to say that Dr McCullagh has
agreed to be available to his successor during the next 12 months to
provide such information and advice on the Company's business as Dr
Goldstein may require.
     I think the greatest compliment which can be paid to Keith is to
remind shareholders of the innovative approach to discovery research
which British Biotech has pioneered. It will be the task of this Board
and of management to build on this scientific platform in the years
ahead and to produce the optimum return which you, the shareholders in
the Company, deserve."
     The Chief Executive of British Biotech, Dr Keith McCullagh, who
retires from the Company following the AGM, said: "Firstly, I should
like to emphasize my personal belief in the strengths and potential of
our Company. I wish it, the new management team and, in particular, Dr
Elliot Goldstein, every future success. Secondly, I would like to
extend my thanks both to my fellow Directors and to all the staff of
British Biotech for their commitment and efforts over many years.
Equally I would like to thank shareholders for the support they have
given the Company. I intend to remain a shareholder myself."
     This news release contains forward-looking statements which
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.
     This news release contains forward-looking statements which
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.