Happy return to a biotech future?

ANDREW MILLAR has a new spring in his step these days. "A lot of people are talking to me about different possibilities for future work," he says. "Yes, and some are in the biotech industry."

For many months it looked as though Dr Millar, at 45, would have problems ever finding work again. More than a year ago, he rose reluctantly but rapidly to fame when he blew the whistle on the wayward progress of drugs trials by British Biotech, at the time darling of the stock market, He felt that its two drugs, Zacutex and Mirimastat, were failing in the task of curing pancreatitis and pancreatic cancer, patient safety was being risked and shareholders' money wasted. He alerted big shareholders.

The response was swift: he was fired. But in the long term it was British Biotech and its chief executive Keith McCullagh who ended up paying the price. The data from the trials was released early, and vindicated Dr Millar. The company's share price collapsed, from a valuation of about pounds 2bn to pounds 130m.

In the process, many other biotechnology companies were pulled down, because investors decided that, somehow, the problems of one company must have infected them all. Nick Woolf, the biotech sector analyst at BancBoston Robertson Stephens, says: "There was a complete loss of confidence and a downturn in sentiment on the back of all the BB stuff."

Timing, of course, is all. Tomorrow the BioIndustry Association (BIA) launches a new code of practice calling for companies to recruit non- executives who have skills and knowledge "relevant to the company's stage of development" - so startups will have non-execs aware of the potential pitfalls in R&D. And the BIA will warn companies not to issue excitable press releases that hype the results of drugs trials long before they are ready for widespread use.

That can be read as a side-swipe by the BIA at British Biotech (and one with which Dr Millar could agree). But any biotechnology company trying to excite investors has a tightrope to walk: on one hand, putting out press releases about test results might raise hopes unnecessarily; on the other, companies need to give their news. The BIA clearly wants companies to drop the hype.

Any company aiming to produce a new drug for patients faces high hurdles. First, of the thousands of drug "candidates" synthesized in laboratories, most fail initial tests such as animal toxicity or stability. Those that survive face the three ordeals of human clinical trials - Phases 1, 2 and 3 - before they can acquire the holy grail of marketing authorisation. Undertaking those trials can take 10 or 15 years, and they can fail at any stage: reaching Phase 3 and failing is just as critical as failing in the first test tube, but much more expensive. Meanwhile, the company has been spending the shareholders' (or bank's) money. It is a huge risk, and it is unavoidable.

"Managing risk is the biggest problem facing pharmaceuticals or biotechs," Dr Millar says. "I have often thought it's like digging for gold - that's probably the best comparison.

"If you're a one-product company there is a terrible imperative to keep going. But you have to be even more hard-nosed about shooting things down than in big pharmaceutical companies. If your product is not going to work, you have to change direction very quickly. The last thing you can afford to do is to shut your eyes and hope. `Ostrichery' or bluff is the recipe for disaster."

Dr Millar feels the British biotechnology industry needs to rethink itself - "to get realistic - as happened in the US 10 or 15 years ago." There, a similar market capitalisation bubble was burst by the failure of products touted as solutions to "septic shock", a frequent cause of death in emergency patients.

Small startups, Dr Millar points out, are going to be good at producing candidate drugs, because they can talk to the innovative scientists at the cutting edge of research. "There are tons of university labs with bright scientists who want to do things with applications in health care. But British universities are dreadfully underfunded."

He cites Germany as a country where state governments are ploughing seed capital into startups. (Dr Millar acts as an adviser to an unlisted German biotech company, Wilex.) "In Britain, without government money, that means the City is effectively the R&D director of candidate biotechs."

But is the City any good at the job? At Nomura Securities, the biotech analyst Erling Rafsum points out that the UK, with 40 companies listed, has the world's second-largest biotech industry, worth pounds 7bn. But that is only one-seventh the size of the biggest market, the United States, where some companies, on their own, dwarf the entire sector here.

"Following what happened with British Biotech, there has been a real change in investor sentiment," Mr Rafsum says. "Investors in the City aren't interested in companies whose market capitalisation is less than pounds 10m, which has left a residual gap between them and those whose valuation is around pounds 100m - which is when institutional investors get interested."

Equally, there's little enthusiasm for new prospects; the City would rather shell out on rights issues. At present, the City is clearly cautious. Nick Woolf, at BancBoston, says: "There are bargains out there."

The odd thing is that one of those bargains might include British Biotech itself. Although Dr Millar insists he wants to leave the episode behind after the emotional upheaval, he obviously cannot let go of what might have been.

"British Biotech was terribly exciting when it was going, and it was unlucky," he says, with a faraway look. "There was a combination of outstanding chemists and biologists who developed very, very good drug candidates. They were ground-breaking scientists, real rocket scientists. Then they passed it over to us, in the development side. We made operational decisions and implemented them fast. We made a lot of progress. And we very nearly succeeded.

"When I joined, I told friends we had a 1 per cent chance of making it. In 1997, I thought we had a 30 per cent one. So that's tremendous progress - but still mostly against making it. The mistake was for people to think that was like a 100 per cent chance of success, rather than a 70 per cent chance of failure."

So is he left feeling vindicated? You bet. Last month British Biotech representatives said in court that Dr Millar had "always acted in accordance with his medical opinion, his professional obligation to patients involved in clinical trials, his conscience and his view of the best interests of British Biotech". Sources say he also got more than pounds 500,000 in damages and legal costs.

The London Stock Exchange has also rapped the company's knuckles for mishandling sensitive information on the drugs. And as company results were announced last week, showing that losses had been reduced to pounds 39.8m, from pounds 44.9m last year, two more directors resigned.

Would Dr Millar do the same again? He hopes he would follow his conscience. "There's always the potential for apparent conflict of commercial interests. But you know, really it's imaginary. In health care, no matter what part of the industry or business you're in, your customer is the patient, and in successful businesses the custom- er is king. The best way to run a business to deliver health care is to give yourself the best chance of successfully demonstrating that your drug will benefit patients."

Even now he thinks there is hope for the drugs he helped shoot down. "I think Marimastat probably does work," he says. "Maybe on the early stages of breast cancer. The trouble is that the first test, on which the stakes were raised too high, was against pancreatic cancer, a terrible disease that kills you in three months."

The company was locked into trying to get a result on Marimastat used against that form of cancer, because the clinical trials could be done more quickly with a short-term cancer. In a longer-term cancer - such as breast cancer - the results might be better, but would take much longer to arrive.

There is the essential dilemma for the biotechnology company - should it be a tortoise or a hare? Dr Millar has no doubt. "If you're in business to make a quick buck, you shouldn't be in the biotech industry. We don't want people like that in this field. We want people with a long view."