LONDON — Xenova Group plc, which specializes in the discovery and development of small-molecule drugs from microorganisms and plants, said it will reduce costs by scaling down development of its QTC natural products library system, after failing to find enough partners to fund the work. The decision was made in agreement with the two founding partners, Warner-Lambert Co. and Zeneca Group plc.

The move will involve cutting an undisclosed number of staff, and is part of CEO David Oxlade's plan to reduce cash burn of £13 million per annum by 40 to 50 percent, while concentrating resources on drug development .

Oxlade, who took over as CEO in March, said the project has demonstrated that natural products screening can be carried out "as rapidly and efficiently as that using synthetic libraries." The pilot study has also shown very promising screening results, but, Oxlade noted, the cost of producing large volumes of single, purified, rare and novel compounds is high, and the completion of the QTC library would require substantial additional funding from further partners. The program requires "the support of four or five founder partners to fund development. To date two have been recruited," Oxlade said.

Zeneca, of London, and Warner-Lambert, of Morris Plains, N.J., have received a number of compounds as a result of the QTC collaboration, most of which are novel, and all of which are rare or previously undescribed. These will continue to be used in in-house screening programs.

The QTC capability will be retained and full development could be reinstated as further partners are found. When it began the project, Xenova set a target of 10,000 compounds as the number required to create a credible library. Although there are currently only about 1,000 compounds, the company said the library has been extremely productive. And while partners have not come forward to meet the costs of expanding the library, many have expressed an interest in using it.

Drug discovery and development based on Xenova's NatChem library of natural product extracts will continue, and are unaffected by this decision. Xenova also announced an extension of the NatChem drug discovery collaboration with Parke-Davis, the pharmaceutical division of Warner-Lambert. Under the original May 1997 agreement, Xenova has provided natural product extracts for screening; Parke-Davis now has screened these mixtures and has come back with potential hits from which Xenova will isolate and identify active chemicals.

The therapeutic areas covered by the collaboration were not disclosed. Under the terms of the extension agreement, Xenova will receive payments in addition to the research, milestone and royalty payments payable under the original agreement.

Trading began last week of the new shares issued by Xenova in a £9.6 million fund raising. Only 12 percent of qualifying shareholders took up their entitlement, but a spokeswoman said the company considered this "encouraging in the current climate." Nineteen percent of the shares is held in the U.S., but because of the structure of the placement, these shareholders were not eligible to take up new shares. *