The IPO
The summer of 1993 was seen by many as a window of opportunity for the flotation of companies, an initial public offering (IPO) on the London Stock Exchange. A number of smart people got companies listed on the London Stock Exchange, raising large sums of money. For research-based and loss-making high technology companies, the period was even more propitious. The relaxing of listing requirements, to a large extent pioneered by British Biotechnology, prompted several entrepreneurs to follow their example and seek a listing. It seemed that this could not go on indefinitely and this expansive period was likely to be followed by a time when the door would be firmly shut: a feeling enhanced by what seemed to us to be the rather dubious quality of some of the businesses being floated. Clearly the City was not very wise when it came to technological questions.
Although we did talk with some of the famous City institutions, our appetite for going public was definitively whetted by a presentation from Henry Cooke Corporate Finance of Manchester in the person of Martin Robinson. They were introduced to us by Jeremy Brassington, but were already familiar to some of us as one of the biggest provincial stockbrokers. In fact Brasenose College had a connection with them through the Hulme Trust, managed by Henry Cooke, and of which the college and Oxford University are major beneficiaries. The fact that the firm was a northern outfit commended it to us, as did their clear realism.
Martin’s presentation explained the process of seeking a listing and claimed that this could, in principle, be achieved in as little as eight weeks, a feat that had been accomplished with Tadpole Technology. He largely won over an initially sceptical board. The only real reservation came from Keith McCullagh and he chose this time to withdraw from being a non-executive director. His major reason was pressure for him to concentrate on the development of British Biotechnology, which was entering the serious and exciting phase of their business when clinical trials of new drugs were looming. These drugs could have made the company, but in the event proved more than disappointing.
The rest of the board and our observers from the venture capital funds who supported us were strongly in favour, even though, as Martin Robinson explained, all the shareholders would be subject to a lock-in of perhaps a couple of years so that we could convince the City of our serious long-term commitment to the company. A decision to go ahead in principle was taken in November 1993, with a definitive date set for the irrevocable decision to be taken early in 1994.
The decision provoked a number of consequences and a massive amount of work for a total staff of only thirty. Henry Cooke had to do considerable due diligence on the company and here our original decision to employ top-level accountants and solicitors paid off. All the board meeting minutes and papers, contracts with employees and customers, and financial records were in excellent order for a small start-up company.
Rod Hall became chairman and we were advised that the Stock Exchange would require us to have a managing director, in addition to Tony as chief executive officer, a finance director of suitable experience, and at least one more non-executive director with genuine credibility in the City. This last addition to our ranks was the easiest to make. After flirting with names like John Harvey-Jones we followed the advice of Rod Hall and approached Christopher Weston, the chairman and CEO of auctioneers Phillips, and Rod’s co-director at Foreign and Colonial Enterprise Trust. Christopher, being a man of experience, also did his own due diligence on us so as to be sure that he was getting involved with a company that had a really big future.
Going public is an expensive business, particularly if the attempt were to fail, so it was necessary to take in more funds. This was done in three tranches as various milestones were passed, with about £1.5 million being taken in November 1993, January 1994 and March 1994. By this stage, of course, with a flotation in sight it was not difficult to raise funds, and at a price which put a substantial value on the company.
New Employees
Finding the managing director who would report to Tony, and an experienced finance director, was not as straightforward and necessitated the use of headhunters. The first position to be filled was that of the MD and chief operating officer. At the end of the search our advisers came up with yet another Brasenose chemist, Tim Cooke, who had spent most of his career after an Oxford doctorate with Logica, although he joined us from OASIS management consultancy. His contract permitted him to start in February 1994, only about three months before the float.
The timescale was even tighter for the new finance director, Andrew Maunder. He had held various accounting positions with Racal Electronics, the Bentall Group in Canada and Motorola prior to joining 3NET Ltd, a supplier of digital networks. He joined in March, a month before we had to approach the City institutions. Fortunately, we had also recruited a financial controller in 1993, Diana Audley, who had a degree in physics as well as having trained with Coopers and Lybrand. It was on her that much of the heavy work fell in the preparation of the long-form report and audit required by the Exchange.
Verification
The verification procedure demanded for every single statement in these documents makes it hard to understand how any swindle, such as that perpetrated by Robert Maxwell, can be possible. So many people have to be involved in the process and our lawyer, which in practice meant Neil Woolhouse of Booth and Co, insisted upon documentary evidence for every single statement. We were not permitted to say in the prospectus that we were the biggest provider of software for computer-aided molecular design in Europe, even though we were, because that is hard to prove with documentation. On the company side we employed Andrew Stamp of Morgan Hands Burroughs to assist in the preparation of all the documentation. The small team did a fantastic job and our timetable only slipped about three weeks. We had aimed for the end of March, but in the end put back the date until the end of April.
Some things which we had anticipated to be minor took up a lot of time. Amongst these was the cover of the prospectus. Although we were a software company which did sell computers as a small part of the business, we were not allowed by the Exchange rules to put a picture of a computer workstation on the document. We had to go for something a little more abstract that attempted to show our software was related to molecular biology and drug design. When that was finally done and we had our draft, or “red herring”, prospectus ready and a date from the Exchange for the listing, we were ready to do the roadshow, visiting financial institutions to try to persuade them to invest.
The Roadshow
The first port of call was the offices of Henry Cooke in Manchester. This was not just a dress rehearsal, but also an opportunity to sell the idea to the fund managers of Henry Cooke who look after the investments of their private clients. The plan was for 25% of the offering to be available to these private clients and the rest to City institutions with the general public getting its chance only when dealing started.
The presentation, which we could give as a slide show, or from a prepared set of reproductions of the slides mounted in a turn-over folder, was timed to take 20 minutes. This timing was important since we often made the presentation perhaps four or five times a morning, with taxi dashes between venues. We were accompanied by Richard Lucas of Henry Cooke who acted as our minder, ensuring that we did not make statements about profits nor anything not included in the prospectus.
The actual presentation was in three parts. Tony Marchington spoke first, and tried to explain what the business was about. To do that he started by talking about Brunel and the bridge which had to be built over the Thames at Maidenhead by the Great Western Railway. At the last moment Brunel had been instructed that only one pillar was to be allowed. This required the longest, flattest brick arches ever built and the experts had thought that this was impossible, even turning up when the scaffolding was removed to see it collapse. However, because of its design and mathematical perfection it did not fall and still carries the railway today. From this he moved on to molecular design and gave an outline of our vision.
The central portion of the show was a brief description of our science, given by me. The final section, again delivered by Tony, came to the prospects, the market and our plans both for our MERIT scheme and the contract research business. In this last area we were able to quote the success of the contract to humanise antibodies and to make a convincing tale of the possibilities of doing research contracts for pharmaceutical companies.
The team that went on the roadshow trip was Tony, one of us two scientists and Andy Maunder. Despite his very brief time with the company he managed to pick up not only the finances but also a good notion of our activities. He also ran a book on our impressions of how the presentations had gone. After each we estimated just how much each fund manager would invest. That was very hard to judge. People who seemed fascinated did not necessarily come in, while others who seemed bored did so. A fair indication of just how difficult a judgement that was can be ascertained by the fact that I won the contest, despite being certainly the least qualified to guess.
The roadshow proper started in Scotland, Glasgow in the morning and Edinburgh in the afternoon. As well as the presentation team, we had two teams from the technical part of the company. Leapfrogging each other, one of these technical teams came to each presentation and were there set up complete with a workstation and demonstrations of the software prior to our arrival. When we dashed off to the next venue the technical people stayed on, gave demos and in a number of cases really helped our cause.
Of course the first presentation was the one which caused most nerves, for me at least, not knowing quite what to expect. Fortunately and fortuitously the young fund manager, capable of signing up for several million pounds worth of stock, turned out to be a relatively recent Brasenose engineering graduate, so we did not feel intimidated. We explained that we were selling about one-third of the company which would capitalise the newly named Oxford Molecular Group Plc at about £30 million.
Our spirits went up and down as we discussed whether our shows had the desired effect. Obviously the market was getting less and less receptive to new issues. We spoke to fund managers who had already seen perhaps thirty presentations that month. Real jitters started when we learned that Cortecs, the company that was one ahead of us in the Henry Cooke pipeline, was having its launch delayed. They were revived when Richard Lucas was able to tell us that some promises were coming in.
The final day of our performances was much like the first. We were exhausted with the effort, not just of dashing around, but also because of the strain in trying to sound fresh and exciting with the same material that had been used thirty times before. Happily the last presentation, which was to M & G, was attended by a fund manager who turned out to be another old friend, Jonathan Bartlett. Jonathan had been a junior Research Fellow at Brasenose, then a tutor in French at St Anne’s College, Oxford, where he transformed Oxford University rugby football before joining the City. We were able to return to Oxford on the train together and learn some of the intricacies of the current state of the market from him.
It was clear that the window of opportunity for new issues was closing rapidly as the market drifted downwards. Thus it was a matter of relief as well as pleasure when we learned from Henry Cooke that in the jargon of the City “we had got it away” – the funds for which we were asking had been forthcoming at a price of 72p per share. When that price had been fixed we had been mildly disappointed, hoping for perhaps 75p. In the event we were very happy with it and felt that the advice had been good.
In addition to convincing the City fund managers, we also of course needed to make an impact on the share buying public. This involved hiring a City public relations team in addition to Andrew Lloyd who remained with us acting largely in the technical area. He organised a day with technical journals and broadcasters and on that side we were well served. The general public relations pieces in the national press and quality Sunday papers also looked good, but this was more due to our own efforts rather than those of the professionals. Being associated with Oxford University and, what is more, the first company to be spun out of that ancient seat of learning, made for a good story. In The Sunday Times Magazine Tony and I were described as the biggest benefactors of Oxford University since Henry VIII. Given that even after the flotation the university would own almost 10% of the company, this statement is close to the truth, especially as the university disposed of most of its shares at £3.20 each. It is my view that universities ought always to sell a large proportion of their shares at the earliest opportunity.
Successful Flotation
With the roadshow over and the promises of support in, there was a period of calm for a few days until dealing started. That day was a real reward: less than five years from starting out Oxford Molecular Group Plc appeared on the screens as a traded stock with the initial price achieving a satisfactory premium over the issue price. It was a time for celebration – champagne, a dinner from Barclays Bank in their directors’ dining room, and above all the satisfactory feeling of having £9 million in the bank, our advisors having charged us £1 million.
We also had one final lunch of the old Oxford Molecular Ltd board and venture capital observers. This was held in the Bear at Woodstock with the arrangements being largely the work of Paul Bailey. To our surprise he himself did not turn up at the very jovial function. Even more upsetting was his subsequent suicide. We all felt we had lost a good friend and someone who had made enormous contributions to getting the company into existence and to the process of becoming a Plc. The next step would be to use the money from the flotation wisely, expanding into the USA and developing our contract design business.
Acquisition Of IntelliGenetics
In late 1993, before we had even made the decision to go for a public offering, Tony had been in discussion with the US oil giant Amoco about their wholly owned subsidiary IntelliGenetics Inc. Once again this opportunity arose from a question of ripe time. In the 1980s, major corporations such as oil companies diversified madly. The fashion was to get into new promising areas, particularly those involved in high technology, so as to build a long-term future for that unquantifiable time when the oil “runs out”. The slogan of the 1990s, by contrast was “back to basics” or “concentrate on the core business”.
It was with this background that Tony became aware that Amoco might be interested in selling IntelliGenetics Inc. Their area of business was one into which we had for a long time wanted to expand, bioinformatics – based on gene sequences – the ideal compliment to our own area of expertise with proteins and small molecules. Our long-term objective had been, and remained, to cover the entire science of drug discovery from the gene, via protein, to small molecule drugs. Discussions with one small US company, GCG Wisconsin, had been held to see if a marriage was possible, but they preferred independence at that time.
The chance to make a liaison with IntelliGenetics was just what Oxford Molecular needed. They had a similar background to us and had complementary technology. IntelliGenetics had been founded in 1980 by four Stanford academics, Douglas Brutlag being principal among them, and he had remained a consultant to the company. They had been supported by venture capital to the tune of some $3 million until making an initial public offering in 1983, which raised a further $8.8 million. In 1986 a joint venture was formed by the company and Amoco with the oil company holding 60% of the shares, and then in 1990 IntelliGenetics became a wholly-owned subsidiary of Amoco Technology.
In 1997 IntelliGenetics won a five year $22 million contract to improve, maintain and distribute US National DNA Sequence Databank (“GenBank”), but in 1992 the contract to continue this distribution was taken up by the National Center for Biological Information, a division of the US National Library of Medicine. The company had subsequently slipped back somewhat, despite being at the time the world’s largest seller of genetics software. It was with this background that Tony entered into negotiations with Bob DePaul of Amoco in late 1993. The primary difficulty was the thought of trying to set up a major merger or acquisition whilst at the same time undergoing a flotation. It was just not humanly possible, even for Tony, so the matter was put on hold until the completion of our initial public offering.
Hence it was almost immediately, following Oxford Molecular’s successful launch on the Stock Exchange, that negotiations were resumed. One complicating feature became apparent almost immediately. The sales of IntelliGenetics were larger than those of Oxford Molecular so that, in the eyes of the regulators of the London Stock Exchange, we were going to be involved in a reverse takeover. The significance of this was that it once again necessitated producing an entire prospectus, with all the work that this entailed, including audits of both companies and a long-form report – a very profitable process for our lawyers and bankers.
Despite the pressure the acquisition was completed by September 1994 for an aggregate consideration of $5.2 million, largely in shares in Oxford Molecular Group, with Amoco like the earlier investors being locked in for two years.
The intellectual property that came with the deal gave us what we sought: software to analyse DNA sequences. The software worked on Apple Mac machines and personal computers as well as on workstations. In addition it included a system for massively parallel computers developed in pioneering work by John Collins at Edinburgh University. Thus we were expanding our academic network as well as getting seriously involved in the all-important US market.
As in any takeover there were also difficult decisions about personnel. Who should go and who should stay so that there were savings gained from the merger, but not to the extent of emasculating the combined company? We gained some superb sales people who had done particularly well in Europe, but saw the chief area where savings could be made as being on the technical side, since programmers were less expensive in the UK than in the US. Shedding people is never easy and probably particularly difficult in small companies where everyone knows everyone else. In the USA one has to be particularly careful so as to avoid being sued. Some of the departing female employees did suggest they would hire lawyers to allege sexual harassment but as it turned out this threat did not materialise. By the end of 1994 the IntelliGenetics division of Oxford Molecular was slimmed down, on budget and making major contributions to the whole company, while we had kept one of the major promises in the flotation prospectus – expansion into the US market.
Not only was the input from IntelliGenetics important from a commercial point of view, perhaps more significantly it gave us a major presence in the area of genetics, which is without doubt the front-runner among all current scientific disciplines. Billions of dollars were being spent worldwide in the Human Genome Project to sequence the entire human genome. If this vast amount of data is to be useful it has to be organised and searched with computational tools. In Britain it is an area of science in which we excel, in no small part due to the support given by the Wellcome Trust. At Hinxton Hall, near Cambridge, the Trust, with a little help from the Medical Research Council, has invested many millions in sequencing. In Oxford they supported the Nuffield Professor of Medicine, John Bell, to the tune of some £25 million to study human genetics and multigene problems such as diabetes. It was into this area that we wanted to grow and to use our previous software products to go to small molecule products for the pharmaceutical industry. We thus felt it important to include John Bell in our plans as an advisor, particularly as his group is one of the world leaders in bioinformatics.
A major coup in the same vein was the agreement of James Watson (of Watson and Crick fame) to join our International Scientific Advisory Panel. This was no mere tokenism. During the academic year 1993-94, Jim was in Oxford as the Newton-Abraham visiting professor. Hence it was possible to see a lot of him and to get his advice. An unexpected bonus from the acquisition was the purchase of a very complete set of gymnasium equipment since the Palo Alto company had its own gym. We were not able to transfer this to the new premises so we sent the equipment in a container to Oxford, along with their impressive boardroom table. The gym was set up in the Oxford offices and a personal trainer was hired, allowing all employees time off during work periods to use the facility. This was a wonderful corporate move. Some 80% of the employees took advantage of the equipment and it did prove a channel for people in different parts of the company and at different levels to meet and interact. The one person who did not use the gym was the one person who needed it most; Tony.
Acquisition Of CAChe
Flotation and an acquisition all in one year is quite a mouthful for a small company, but it was not by any means the whole story. Yet another takeover possibility was suggested by Tony – it had occurred to him as a result of his talking with other companies in the field. The takeover candidate was CAChe Scientific Inc. The name derives from Computer-Aided Chemistry and the background was remarkably similar to our opportunity with IntelliGenetics.
CAChe was based in Beaverton, near Portland, Oregon, and had been founded in 1986 within a research division of the major corporation Tektronix, best known as a maker of scientific electronic instrumentation. Again this was the period where corporations expanded into novel high technology growth areas. CAChe was formed as a subsidiary of Tektronix in November 1991 and in 1993, Sony and Tektronix subscribed to 30% of the company’s equity for $105 million in a joint venture. This investment was to be used for product development. Perhaps as a result of this link with Sony, CAChe had the largest part of the Japanese market for computer-aided design software. They also had a joint development agreement with the scientific and technical application software unit of IBM’s Research Centre at Almaden, California.
From the viewpoint of Oxford Molecular, the really attractive feature of the CAChe company was the quality of their computer interfaces and above all the magnificent display of molecules on the screen. Without doubt the visual quality of their software was second to none – it allowed not just simple representation of molecules, but also molecular motion and three-dimensional viewing. In terms of the front end, which a working chemist or student would see, they were in a class of their own. Conversely, if we were to be critical, what they seemed to lack was much hard science behind the interface. This was the complete reverse of our own situation so there seemed to be a chance of a happy marriage.
One of our visions, slowly becoming fact, was that bench chemists, who make molecules in pharmaceutical and biotechnology research laboratories, increasingly used computers for themselves – they did not merely go down the corridor to consult the resident expert. This being so, there was an absolute need for systems that would work on Apple Macintosh or personal computers with simple looking but sophisticated interfaces. These were the strengths of CAChe.
By now a veteran of takeovers, Tony, together with Rod Hall and Christopher Weston, proceeded very quickly with the negotiations with Tektronix. This time round we were not involved in a reverse takeover, just the common or garden variety. Audits had to be made of both companies, but of course whereas buying a small independent company might be difficult from an auditing point of view, buying from a major corporation essentially ensures that there are no hidden pitfalls in the books.
Only in one tiny area did a conflict between our lawyers and theirs fail to be resolved instantly. Tektronix had moved CAChe to a new business park on what had been an industrial site. Our lawyers saw it as imperative for us to have absolute protection against any claims to be made at some future date in respect of pollution or environmental effects dating back to events that would have taken place years before we had any connection with the site. One only wishes that the lawyers working for Lloyd’s of London had been as scrupulous, in which case many names would not have fared so badly.
The negotiations were all but complete by Christmas 1994 with the loose ends tied up by January. The final low hurdle, required by Stock Exchange regulations, was an extraordinary general meeting of the company so that shareholders could attend to vote on the change in the company if they so wished. Prior to this, of course, each of our 3,000 or so shareholders had received listing particulars of the issuing of new shares that were to be used for the purchase. Our major shareholders were visited and had the details of the transaction and the scientific and commercial rationale explained.
The only question raised at the EGM was the same as had been put on the occasion of the IntelliGenetics merger: why should a small loss-making company buy another company in a similar position? The answer was obvious and universally accepted. It encompassed, above all, the further shift of the centre of gravity of the company towards the USA and a huge lift in our prospects in Japan. Oxford Molecular had been strong in Europe but weak in the USA. CAChe was in the converse position. The combination was clearly going to benefit both companies. The takeover was agreed with Oxford Molecular, buying with our own shares. Everything was complete by 1995.
After rationalisation, as the distressing business of letting some employees go is called, the company’s workforce was just over a hundred people with headquarters in the Oxford Science Park and with development, sales and administration offices at Mountain View in California and Beaverton, Oregon. Additional sales offices were located on the campus of the École Polytechnique in Paris and at the University of Erlangen-Nürnberg in Germany. The Japanese market was served by the partners of the three combined companies Sony/Tek, Toray Systems Centre and Teijin.
By the end of 1995 at least three major collaborations were announced: with the then Glaxo Wellcome to provide desktop solutions for their medicinal chemists; with Applied Biosystems to provide our data-handling software on their new generation of DNA sequencers; and with Silicon Graphics Inc, who at that time had virtually the entire market for computer hardware in the area of drug design.
Acquisition Of MacVector And Health Designs
The acquisition fever also continued. The bioinformatics software named MacVector was purchased from Eastman Kodak. The computer-aided toxicology business Health Designs Inc based in Rochester, New York, where the leading scientist involved was yet another former “postdoc” of mine, Vijay Gombar, was also acquired.
The End Of The Lock-In
Not surprisingly the City loved this activity and for two consecutive years we were amongst the fastest rising shares on the London Stock Exchange. The rapid growth persuaded us that we needed more heavyweight advisors and we were taken on by Cazenove, one of the City’s most prestigious banks. We were later to learn that they could be just as hard and avaricious as any barrow boy, but they did do some remarkable things for us. Most notably when the two-year lock-in period following the IPO came to an end they handled brilliantly what could have been a very difficult time. When the original shareholders became free to sell their shares, some 60% of the company was suddenly saleable. This included the university and the venture capitalists as well as the founders. Cazenove were brilliant in the sense that through a period when one might have expected the share price to fall, it in fact just rose smoothly, onward and upward.
Cazenove proved outstanding at placing the shares amongst their friends, although the all-important selling roadshow was again performed by Tony and, to a lesser extent, by me. This in fact left a slightly sour taste, since having done most of the work Tony and I were telephoned on the final evening and told, contrary to what we had been promised, that we could only sell one-third of our shares rather than one-half. For me this was an irritation as I felt we had been conned, but for Tony it was more serious as he had already spent the promised cash on a farm, which he later sold at a profit. In addition, and more sensationally, he had splashed out on the famous steam locomotive the Flying Scotsman and its carriages – a saga which is well worth another book.
Sex
One unforeseen problem in the thriving company was sex. Nearly all our employees were in their 20s or early 30s, with a near equal number of male and female employees. Hormone levels were dangerously high and we had a number of problematic relationships that resulted in us losing some otherwise excellent employees. Even if people had important talents we could not countenance someone spending much of the working day sending mildly pornographic emails to someone on the other side of the room. Even our gym failed to divert some people’s energy.
Contract Design
Another new strategy, which became possible after flotation, was to use our own software and carefully nurtured academic contacts to do contract design. To a small extent this strategy was already being followed prior to the initial public offering. Antibody modelling contracts were completed successfully by Tony Rees and his group at Bath for NeoRx and for Immunogen. These contracts involved the humanisation of antibodies, that is changing the make-up of an antibody raised in a mouse so that it is seen as of human origin by the human immune system. This type of contract can bring in sums of the order of a few hundred thousand dollars. What we were more interested in were contracts worth several millions of dollars with major pharmaceutical companies.
At first sight it may seem strange that a pharmaceutical company with a research budget of hundreds of millions of dollars per year might contemplate outsourcing some of its fundamental research. However, the time was certainly ripe for this to happen and a number of small companies succeeded in winning significant contracts.
One reason why this was starting to happen was the radical restructuring of the drug industry. As we had foreseen, the situation where the biggest companies in a major industry only have less than 5% each of the market and also do the complete job from top to bottom – research, development, marketing and selling – was not likely to last. As became obvious, there would be mergers and takeovers so that the top players have nearer 20% of the market share: Bristol Myers and Squibb, SmithKline and French with Beecham, Glaxo with Wellcome. Many more followed and continue to this day.
Even the very big merged companies with enormous research departments can only cover a range of perhaps a dozen therapeutic goals. They are the sort of large organisation that is brilliant at development, but less well geared towards completely new lines of research. For a major company to get involved with a risky new area may involve building new laboratories, certainly hiring new staff with special expertise and creating something that it is difficult to wind up. If the project is done outside, provided strict confidentiality can be ensured, then only a fixed fee is risked, and the outcome should be novel lead compounds, which the big company can develop and market.
The best new ideas often originate in academic laboratories, but these are not ideal for commercial research as confidentiality is difficult and academic researchers have other priorities beyond making profits. This is the case even though academics and their departments are anything but naive with respect to funding.
What is needed is a middleman, and Oxford Molecular was in an ideal position to fulfil this role, having its spectacular list of academic partners, which included three Nobel Laureates. Indeed, it was almost a virtual pharmaceutical company.
The outline is perhaps obvious and the opportunities enormous. To get such a notion off the ground, however, requires a tangible project that can be sold to research directors. A mere idea is not enough. Major companies may receive hundreds of speculative ideas from academics who all believe that their particular project will generate enormous amounts of cash for the company and themselves, but companies just cannot in general take up lots of new ideas, however attractive. Far more likely to succeed are ideas supported by a business plan based on sound finance, which can be presented as a possible deal.
The Chloride Channel Project
The first such proposal from Oxford Molecular was put together by Roland Kozlowski of the university’s Department of Pharmacology. It concerned channels in cell membranes through which chloride ions are passed. This was an ideal topic since chloride channels were not current targets, even though similar channels which transport calcium ions or potassium ions are the object of massive research, with blockers of those channels providing markets of many billions of dollars, particularly in the area of cardiovascular and heart disease.
Chloride channels are implicated in therapeutic areas, which include asthma, cardiac arrhythmias, cystic fibrosis and eye cataracts. The combined area was thought to have a market value of maybe $20 billion. Roland put together a scientific team under a steering committee chaired by the recently retired Master of Balliol College and Nobel prize-winner, Baruch Blumberg. The team included Professor Christopher Higgins, then head of the Nuffield Department of Clinical Biochemistry and an expert in the molecular biology of chloride channels. His role was to produce sequences of the channels, which would be modelled by my group, and then make mutants to test whether the models explain the experimental facts. Based on the structure of the channel and some known rather poor inhibitors, Steve Davies of Oxford’s Organic Chemistry Laboratory, and himself the scientific founder of Oxford Asymmetry, would synthesise novel compounds. The effects of these compounds would be tested by Kieran Kirk of the Physiology Laboratory using electrophysiological techniques, and by Roland himself.
The project was specifically designed to complement, and not to compete with, in-house research. It enabled the investing company to gain a fundamental assessment of the chloride channel as a target for drugs in a highly effective way. That specific proposal was put to some 32 major pharmaceutical companies across the world, in Japan as well as in Europe and the USA. The final deal was struck with Yamanouchi of Japan who proved excellent partners in a successful three-year £10 million project.
Further Acquisitions
Further acquisitions included the vitally important cheminformatics division of PSI International in Baltimore funded by a successful rights issue in 1996. By this stage the company had the nearly complete range of software products required for drug discovery: genetics software, protein modelling and cheminformatics, and small molecule products. We even finally added GCG Wisconsin, the world’s premier bioinformatics group, to the family. It was impressive albeit stretching, with some seven separate active sites in the US alone.
Cambridge Discovery Chemistry
This rapid growth was, however, not enough to satisfy our vision or our ambitions. We conceived of the drug discovery process as having three legs: the computational side, where we were becoming pre-eminent; the synthesis of drug candidate molecules, at that time most fashionably using combinatorial methods; and third their screening, preferably using high throughput techniques involving robots. Being a listed company imposed constraints. If we had just invested in these areas our profitability would have been damaged and delayed. The only way to avoid having the initial years of new ventures leaving their results consolidated into those of the main company was to set up new ventures, using our cash, but owning less than the legal limit of 20% of the new ventures. In this way we founded Cambridge Combinatorial Ltd, bringing in the Cambridge academics Steve Ley and Alan Fersht, but with Tony’s younger brother Allan as CEO from Pfizer, where he had been a medicinal chemist for some years. In a similar way the screening company Cambridge Drug Discovery was set up with another former Pfizer scientist, Mark Treherne, as the managing director.
Cambridge Drug Discovery was fairly quickly sold to Cambridge Genetics Ltd, but Cambridge Combinatorial, renamed as Cambridge Discovery Chemistry, was such a quick success, thanks largely to Allan’s skill, that it posed a problem. Oxford Molecular had an agreement with the shareholders of the 80% of the company that we did not own to buy them out according to a formula based on sales during their first three years of operation. This formula was not very clear and the board was suffering from poor financial information. The success of Cambridge Discovery Chemistry meant that we had to buy them out very quickly at a very high price. As a result Allan Marchington made a very rapid large profit that was misunderstood and badly received by a hostile City. They imagined that there had been a deep-seated plot by one Marchington brother to put money into the pocket of the other. Almost over night we passed from being the darlings of the City, which had made many millions from us, into pariahs who were not to be supported. It was the beginning of a sad end to what had hitherto been a spectacular success story.
The Demise Of The Company
Just at the point where we had completed the grand design for the company with “design, make and test”, all in one group of companies, the bottom fell out of biotech stocks with our share price tumbling from 400p in May 1997 to 80p in December of that year, despite revenues increasing from £15 million to £22 million. By the spring of 1999 Cazenove, our brokers, strongly urged that a new board was essential. Douglas Brown, a former Barings director, was brought in as chairman, and Laurence Steingold became a new finance director.
Tony’s response to the pressures and an increasingly hostile board was to propose a management buy-out for which it was clear that financial backing was available. The board would however not countenance such a move and total mistrust and acrimony ensued. Inevitably under such conditions things could not go on. Subsequent to my own resignation, the company entered a Members’ Voluntary Liquidation in September 2000 with the Discovery Chemistry business being sold to Millennium Pharmaceuticals, and the Software Division to Pharmacopeia Inc, later to be renamed Accelrys Inc. It is probably true that we made a classic error in keeping Tony as the CEO long after our IPO. A very different animal is required to run a big company with hundreds of employees in a multinational context from the man or woman capable of taking a company from nothing to flotation. Tony was a genius at the latter, but probably not the ideal man to run the established entity. He should have left with a large sum of money and repeated the start-up phase many times.
The highlights of the Oxford Molecular story include having 25% of the world bioinformatics market, the biggest share of the Japanese modelling market and 60% of sales in the USA. We had 400 employees with half being in the US. Oxford University received £10 million.
All of the company is now foreign owned and has proved to have real value. The same is true of other Oxford spin-out successes. A company in the United States owns Powderject and Oxford Asymmetry is now German. It does seem to be a depressing feature of UK academic spin-outs that we are getting good at creating the £100 million company, but are not patient enough to grow £1 billion companies.