By Nuala Moran

BioWorld International Correspondent

LONDON ¿ British Biotech plc is selling part of its discovery arm to OSI Pharmaceuticals Inc. for #8.7 million (US$12.4 million) in cash, which will cut British Biotech¿s annual cash burn by #6 million and allow the company to increase its focus on drug development.

Fifty-nine employees will transfer to OSI, and OSI will also take on two of British Biotech¿s facilities in Oxford with a book value of #5 million, and acquire laboratory equipment. Included in the deal is British Biotech¿s fully integrated pilot manufacturing plant, which is capable of supplying OSI¿s development activities through Phase II trials, OSI said.

The two companies also agreed that OSI will acquire rights to screen British Biotech¿s metalloenzyme inhibitor (MEI) and other chemical libraries. British Biotech will get royalties on any drugs derived from this source.

The move will see British Biotech pull out of further independent research into MEIs, the technology the company was originally formed to commercialize. However, it will continue its collaborative programs in this field with Schering-Plough Corp., Serono SA, and now OSI. There is also an MEI-based antibiotic discovery program ongoing, but British Biotech already has signaled that it is looking for a partner in that area.

British Biotech CEO Elliott Goldstein said the deal would allow British Biotech to concentrate on development and extend its cash resources. ¿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.¿

The restructuring is in line with a strategic review of the company¿s core strengths and their ability to add to shareholder value. It leaves the company with 84 staff members, of which only 14 are in discovery, while 47 are in development.

The proceeds from the transaction and the cut in cash burn mean the company now has funding for four years. The deal is due to be completed Sept. 28.

OSI, meanwhile, expects to close its Birmingham, UK, facility and move those employees to the Oxford facility, which is expected to eventually employ 150 researchers and become the center of the company¿s research and development operations. OSI said it will gain ¿key discovery skill sets in medicinal and analytical chemistry and in drug metabolism and pharmacokinetics.¿