LONDON - Xenova Group plc, which specializes in discovery and development of small molecule drugs from natural sources, said it is looking for new funding, following financial results for the first six months of 1998 showing losses of £6.5 million, up from £5.8 million for the same period last year.

With reserves of £8.7 million as of June 30 and a burn rate of £1.1 million per month, there is now little more than six months' cash in hand.

The share price hit an all-time low of £0.70 on Aug. 12, the day before the fiscal report was released, and the company does not want to raise money through a discounted rights issue. In the past year the share price has been as high as £2.67.

David Oxlade, CEO, told BioWorld International, “We expect to make an announcement in the near future. We are looking at several options to raise money, but don't want to be drawn on the details at present. However, there has been speculation about a discounted rights issue, and we want to make it clear we don't intend to use this route.“

He added, “Everyone is expecting us to raise money and therefore there has been a drift in the stock price. This is acknowledged by investors to be temporary and arbitrary.

“Analyst comment on our progress in the early part of the year has been very favorable, but in the sector as a whole there is clearly a negative sentiment towards biotech, as there is also in the U.S.“

While agreeing there is a much tighter availability of funds, Oxlade said, “If you have solid management, a good story and good signs of progress, there is money around.“

One option for Xenova, of Slough, U.K., would be to find a partner, or partners, for its third-party drug discovery services, Xenova Discovery and MetaXen, both of which operate as discrete business units.

“There are a number of options in respect to commercializing the services side of the business, and this is something we would consider,“ said Oxlade.

He noted that the sale by Chiroscience Group plc, of Cambridge, U.K., of a 30 percent stake of its chiral chemistry services unit, Chirotech, earlier this month is “an excellent precedent. Obviously it is possible to keep access to a technology base without having 100 percent ownership.“

The past six months have seen some significant changes at Xenova, not the least of which was Oxlade's appointment in March to replace founder Louis Nisbet.

The company saw a fivefold increase in revenues to £2.95 million during the first six months of 1998, compared with £531,000 for the first half of 1997. Most of the gain was the result of progress in a partnership with Eli Lilly and Co., of Indianapolis, for development of PAI-1, an antithrombotic, in Xenova's first drug development deal.

Oxlade said, “Significant revenues will continue to flow“ from the Lilly deal. But, he added, overall revenues will continue to be lumpy. “It's not like selling frozen peas,“ he observed.

Xenova reported progress with XR9576, a P-gp inhibitor designed to prevent multidrug resistance in cancer, with Phase II trials to begin in 1999.

Oxlade noted Novartis recently published data on Phase I trials of a similar compound. “We and Novartis believe it's a major opportunity in cancer,“ he said. “Our compound has significant benefits over the Novartis compound.“ The company will look for a partner during Phase II.

Clinical trials of a second cancer treatment, XR5000, a topoisomerase I and II inhibitor, also made progress, with Phase II trials to begin in the first half of 1999. Xenova intends to seek a partner for this compound during Phase II.

The increase in activity pushed R&D costs for the first half of 1998 up to £8 million from £6.3 million in 1997. *