BioWorld International Correspondent

LONDON - Consolidation of UK biotechnology continues apace with the announcement that British Biotech plc will take over Vernalis plc in a £48 million (US$79.7 million) all-share deal that comes just three months after British Biotech's takeover of RiboTargets Holdings plc.

The deal will close a chapter in the history of the UK sector with the erasure of the British Biotech name and the closing of its facility in Oxford. The merged company, to be called Vernalis, will be headquartered at Vernalis' existing site in Winnersh. The former RiboTargets facility in Cambridge will be retained.

The new Vernalis will have cash of £48.4 million, and a market capitalization of £90.9 million, a far cry from British Biotech's peak valuation of £2 billion. British Biotech is offering 0.861 new British Biotech shares for every Vernalis share. Based on British Biotech's closing price of 64 pence Wednesday, that values each Vernalis share at 55 pence, and puts a total value of £48 million on the company.

Since January Vernalis had seen its valuation slip from £43.7 million to £17.8 million, at the end of June. Once the merger is complete, the combined Vernalis will be owned 47 percent by British Biotech shareholders and 53 percent by Vernalis shareholders. British Biotech has acceptances from shareholders representing 44.5 percent of Vernalis.

Vernalis shares fell 2.5 pence to 47 pence, while British Biotech's dropped 4.5 pence to 59.5 pence when the news was announced Thursday.

The merged company will be headed by Simon Sturge, former CEO of RiboTargets, with Peter Fellner, ex-CEO of Celltech Group plc and the prime mover behind the consolidation of the UK sector, as executive chairman. His final act at Celltech was to snatch Oxford GlycoSciences Group plc from under the nose of proposed merger partner Cambridge Antibody Technology Group plc.

Commenting on the proposed merger, Fellner said it will "enhance greatly our ability to create significant value for shareholders in the future." Shareholders are promised cash savings of £6.5 million per annum, while headcount will fall from 204 to about 130. Other inducements are increased liquidity and the prospect of further merger and acquisition activity.

Robert Mansfield, CEO of Vernalis since 1992, left in March and was not replaced, after the company announced poor financial results and warned of a shortfall in working capital. That prompted a 64 percent drop in the shares, to 37.5 pence.

The new Vernalis will build on the drug discovery skills it acquired with RiboTargets to further develop British Biotech's oncology and inflammation portfolio and Vernalis' central nervous system portfolio. It will have one marketed product, frovatriptan, for the treatment of migraine, but beyond that there is no immediate prospect of further approvals, with three products in Phase II, two in Phase I, and two in preclinical development.

There are collaborations with F. Hoffmann-La Roche Ltd. in obesity, Eli Lilly and Co. in sexual dysfunction and Serono SA in inflammation. A portfolio review is planned and further partnerships will be "a key strategic objective," the company said.