Lehman Brothers may be last-minute hope for Bioglan to complete fundraising

Bioglan Pharma, the biotech group whose broker and finance director both quit in a row over fundraising, was in emergency talks with Lehman Brothers yesterday in an attempt to hire the US investment bank as its new broker.

The group is in a race against time. Observers believe its ambitious plans to acquire Bristol-Myers Squibb's skincare product range will collapse without a corporate financier to handle fundraising for the deal.

Bioglan's share price fell another 11 per cent yesterday, making the necessary £200m rights issue even more difficult. Sources close to the company said the likelihood of the acquisition going ahead were now "less than fifty-fifty".

The attempt to buy a portfolio of 20 skincare products from Bristol-Myers Squibb, the US pharmaceuticals giant, would have been a transformative deal for the acquisitive British biotech firm. It would have cost more than £500m and doubled Bioglan's turnover, supplementing its core business, which includes treatments for eczema and pre-cancerous skin problems.

Instead it has turned into a humiliating debacle for Terry Sadler, the avuncular, bearded face of Bioglan. He was ranked at 181 in The Sunday Times Rich List in April but has seen the value of his stake in Bioglan collapse from £174m to less than £70m. He is now ready to split his roles as chairman and chief executive of the company.

To halt the downward spiral, Bioglan issued a statement outlining some of the figures expected to be in the company's interim-results report at the end of September.

These showed sales of around £36.1m in the six months to July, up 59 per cent, with almost half coming from organic growth. But the figures also showed that debt had risen to £105m, and interest payments had tripled to £3.4m ­ more than the market had forecast and highlighting why Mr Sadler has been defeated in his hopes of funding the purchase of the Bristol-Myers Squibb business entirely with debt.

While the broker, ABN Amro, and finance director took a more cautious view, Mr Sadler maintained he was not frightened of debt. He founded the modern version of Bioglan in 1984 by acquiring what was then a tiny family business in Hertfordshire that made vitamins and hormones. He paid for the company by remortgaging his house, taking out an additional bank loan and loading the last £30,000 on to his three credit cards.

Still a 35 per cent shareholder, Mr Sadler was initially unwilling to see his stake diluted by a rights issue. His insistence poisoned the relationship with his new finance director, Peter Johnson, before it had even begun and worsened relations with ABN Amro, the house broker and a fierce advocate of a rights issue.

Mr Johnson arrived at Bioglan in July on ABN Amro's recommendation and immediately began arguing for a limited equity fundraising. He quit after a row last Tuesday, just six weeks into the job, with the resignation styled by Bioglan's City spin doctors as a "personality clash".

"That's a fair description," one insider said yesterday. "It was not so much what was said, as the way they both said it."

ABN Amro wrote to Bioglan last Friday supporting their man and saying they would resign as broker with effect after the bank holiday weekend. The news that the company was without a broker leaked out on Wednesday.

Lehman Brothers has been waiting in the wings throughout the whole saga, insisting it could do the Bristol-Myers Squibb deal through debt financing. Although that is no longer an option, Lehman remains the front runner to be house broker.

But Bioglan's biggest institutional shareholders are now unsure whether they will support a rights issue at the current depressed share price, which was off another 29p to an all-time low of 206p yesterday.

They are alarmed that Bioglan has lost its second broker this year. Mr Sadler fell out with HSBC, which floated Bioglan in 1998, when simmering personal tensions exploded in a row over an investment note that criticised the company's reliance on last-minute licensing deals to ensure the market's profit expectations were met. One of Mr Sadler's friends said: "It was nothing sinister. He just hated them."

Shareholders want Mr Sadler to split his roles as chairman and chief executive and hire another industry player to manage the day-to-day business. One fund manager said yesterday: "The situation has been handled very badly and I think there has been a confluence of too many accidents. The old Oscar Wilde quote applies: to lose one broker is unfortunate but two looks like carelessness.

"Terry is a dominant personality and he has been very successful in building the business, but when you reach a certain stage in being a public company, you have to act like a public company. And that means splitting his roles."

Mr Sadler's tempestuous relations with his brokers are not reflected at Bioglan's headquarters in Hitchin, Hertfordshire. "He is loved by everyone in the company," a friend said. "He's got no front, he doesn't have the big 'I am' about him."

He is also appreciated for having met and exceeded City expectations at every results day since floating the company. The Bristol-Myers Squibb talks were widely welcomed and the collapse of the deal would deprive Bioglan of a good strategic fit, one analyst said.

"I feel sorry for the shareholders, who have bought into this company in good faith, but who have seen the value of the shares collapse just because of a variety of spats between management and brokers," the analyst said. "There have clearly been some substantial egos on both sides of the fence."