LONDON - Xenova Group plc, which specializes in the discovery and development of small-molecule drugs from microorganisms and plants, is raising an initial £9.6 million (US$15.9 million), net of expenses, by way of a placement and open offer.

It has issued 9.6 million units, comprising two new ordinary shares and one warrant at £1.10 per unit. Assuming full exercise of the warrants at £0.70 by Dec. 31, 1999, the company will raise a further £6.7 million net.

The issue has been fully underwritten by Greig Middleton and Co. Ltd., of London. Qualifying shareholders are entitled to two units for every five ordinary shares.

David Oxlade, CEO of Xenova, based in Slough, told BioWorld International the announcement is positive “as far as the U.K. biotech sector is concerned. It tells Xenova that our shareholders believe in our plan to focus on oncology development and that Xenova has the potential to develop a substantial oncology portfolio.

“It is a significant achievement to raise £10 million in the current climate, and what we are expecting is that the warrants will convert over the next 18 months so we can develop and implement our plans,“ he added.

The funds raised will be used to complete Phase I and Phase II clinical trials of the anticancer compound XR5000, a topoisomerase inhibitor, and XR9576, a treatment for multidrug resistance (MDR), during 1999 and 2000. Both compounds are expected to enter Phase II trials in the first half of next year. In addition, Xenova will carry out further research into second-generation topoisomerases, and other earlier-stage oncology programs.

Xenova's strategy, put in place by Oxlade since he became CEO in March this year, is to focus on oncology product development while at the same time putting the company's two technology arms on better commercial footing. “Cash burn will come down in the next six to 12 months at MetaXen and Xenova Discovery, making them cash neutral, whereas at present they take on the order of half the current cash burn,“ said Oxlade. “Some of the savings achieved through this treatment of the technology side of the business will be reinvested in oncology.“

As of June 30, Xenova had £8.7 million in cash and a burn rate of £1.1 million per month. Oxlade said the aim is to reduce cash burn to £6 million to £7 million per annum. “Profitability may be in reach with this fund raising,“ he said. “But our model is based on conservative assumptions, because there will inevitably be disappointments. The company will definitely be solvent at the end of 18 months, with or without the money from the warrants.“ *