Scotia investors to lose out as administrator brokers rescue

Shareholders in Scotia Holdings, the failed biotechnology group, are unlikely to receive anything from a surprise rescue deal being brokered by its administrators. The deal could be signed within weeks.

Ernst & Young has selected a preferred bidder for the Sterling-based company after being contacted by several buyers this week. The approaches followed European Union approval on Wednesday for Scotia's lead drug, Foscan, a treatment for head and neck cancer. The move reversed the EU's earlier rejection of Foscan in January, which plunged the company into administration.

It is thought that the rescue talks centre on an outright trade sale of the business, although shareholders would probably not receive anything. Shareholders have the least rights to a company's assets when it folds.

Scotia shares, suspended from trading at 18.5p in January, were unlikely ever to be relisted. An outright sale would render tax breaks on Scotia's historic losses invalid, although these would remain if a rescue partner took a partial stake in Scotia and it continued to be a listed company.

The European Medicines Evaluation Agency gave marketing approval for Foscan at a hearing in London this week, after reviewing a new analysis of clinical data made by E&Y. Dr Robert Dow, Scotia's chief executive, said he was delighted that Foscan would become available to some cancer patients.

Foscan's prospects for the key US, Canadian and Japanese markets remain uncertain in the extreme. The injected drug makes tumours char when they are exposed to light. The US Food and Drug Administration has yet to be convinced that Foscan's benefits outweigh the risks attending a treatment that some doctors fear could cause accidental burns.

Aside from the absence of FDA approval, the main block to a finished treatment remains finding an acceptable method of administering the compound. That has prompted speculation that E&Y is talking to a well-funded engineering or technology group.