DRUGS group British Biotech is in merger talks with a German rival.

The Oxford-based firm confirmed weekend reports that it is in discussions with MorphoSys, one of Europe's leading biotechnology companies.

The deal would create a combined business worth around £100 million.

Today British Biotech said it was holding preliminary merger discussions which may or may not lead to a "definitive agreement".

In a brief statement, the group added that a further announcement would be made when appropriate.

As well as boosting consolidation across the sector, a deal could revitalise the flagging fortunes of British Biotech.

Once one of the bright lights of the UK sector, it was hit by the failure of cancer drug Marimastat and pancreatitis treatment Zacutex.

They had been hailed as blockbuster drugs with sales potential of £7.1 million, and their failure led to a wholesale change of management.

The firm's share price has also tumbled, from a peak of around 326p in 1996, and some shareholders are now threatening legal action.

Yesterday, the shares sparked one per cent to 5.05p following the update.

Since the failure of Marimastat and Zacutex, British Biotech has focused on developing treatments for a range of illnesses.

These include an antibiotic for a particularly virulent strain of pneumonia and drugs for small-cell lung cancer and multiple sclerosis.

MorphoSys specialises in developing antibody-based products which are used to create new medicines for the treatment of diseases, including cancer.