International Biotechnology Trust (IBT) 31 Aug 2002 Page 6
risk by diversifying pipelines whilst retaining more of the rewards of a successful product
candidate.
Mergers and Acquisitions
Following the consolidation seen in the sector last year, which saw major acquisitions by
Amgen, Medimmune, and Millennium, merger and acquisitions ("M&A") activity has been slow in
2002 and the few deals that have been announced have not materially helped the performance
of the biotech market.
However, there are reasons why M&A may start to pick up. The weak equity market conditions
make it difficult for companies to raise cash, which should increase the pressure for
consolidation. This is most likely to occur between cash rich companies seeking to expand their
pipelines and those companies with interesting products but limited financing. Well-funded
private companies wanting to gain a listing but restrained by the lack of an IPO window could
also benefit from the acquisition of a cash-strapped public company. In addition the need to
bolster product pipelines, bring in new capabilities and to increase liquidity and critical mass to
attract large investors continue to be compelling reasons for M&A. Examples from the portfolio
include Essential's purchase of Maret Pharmaceuticals to bring in a clinical stage compound,
the acquisition of ChemOvation by KuDOS to bring chemistry capabilities in-house and the
purchase of Cell-Matrix by CancerVax to broaden its oncology pipeline.
INVESTMENT ACTIVITY
Summary
During the reporting period investments were made in six new quoted companies Adolor,
Esperion Therapeutics, Essential Therapeutics, Crucell, Alexion Pharmaceuticals and 3-
Dimensional Pharmaceuticals. Following the end of the reporting period an investment was
made in the quoted company, XOMA. Further investments were made in five existing quoted
holdings Epimmune, Aspect Medical, AnorMED, Novuspharma and Atrix Labs. Seven quoted
holdings were sold and four quoted holdings were reduced in size.
In the unquoted portfolio four new investments were made - KuDOS Pharmaceuticals, Genosis,
Auxilium Pharmaceuticals and CancerVax, and there were two follow-on investments in Axxima
Pharmaceuticals and Eyetech Pharmaceuticals. Subsequent to the reporting period a follow-on
investment was made in Affibody. Two unquoted companies were sold.
Quoted Companies
New Investments
Adolor (£0.4m investment) is a US-based company focused on the reduction of side effects of
currently marketed opioids used for pain relief. The lead compound is called Alvimopan and is
in Phase III clinical trials for two indications: post-operative ileus (loss of bowel function
following surgery) and opioid bowel dysfunction (severe constipation in chronic opioid users),
both of which represent large unmet medical needs. Data from these trials is expected in the
first half of 2003 and Adolor hope to file a New Drug Application (NDA) with the FDA by the end
of 2003 for the surgical indication.
Alvimopan is partnered with GlaxoSmithKline ("GSK"), which provides a strong endorsement of
the compound and will allow Adolor to tap into GSK's extensive marketing infrastructure. Since
31 August 2002, a further £0.1m has been invested in the company, increasing the total
invested to £0.5m.
