SOURCE: Xenova Group Plc

June 24, 2005 02:02 ET

Xenova Group Plc announces Offer by Celtic Pharma Part I

Berks, UK -- (MARKET WIRE) -- June 24, 2005 --

THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR
                 INTO CANADA, AUSTRALIA OR JAPAN

FOR IMMEDIATE RELEASE

24 June 2005

                      OFFER FOR XENOVA GROUP PLC

                    Celtic Pharma Development UK Plc
 
          Recommended Proposal to acquire Xenova Group Plc

Summary
The Directors of Xenova and the Board of Celtic Pharma announce that they have reached agreement on the terms of a recommended offer, to be implemented by way of a scheme of arrangement under Section 425 of the Act, under which Celtic Pharma will acquire the entire issued and to be issued share capital of Xenova. The Scheme is expected to become effective in August 2005. Xenova Securityholders (other than certain Restricted Overseas Persons) will be able to elect from one of three choices:
Recommended Proposal            Offer Per 10 Xenova Shares or 1
                                Xenova ADS
Secured Loan Note Offer         US$1.10 nominal of Secured Loan
                                Notes
Cash and Secured Loan Note      US$0.50 nominal of Secured Loan
Alternative                     Notes
                                and 30 pence in cash
Cash Alternative                45 pence in cash
The table below sets out the value of the recommended Proposal per 10 Xenova Shares or 1 Xenova ADS:
Recommended Proposal       Equivalent value in  Total current value
                                      pence(1)             in pence
Secured Loan Note Offer                 60.44     47.14 to 53.19(2)
Cash and Secured Loan Note              57.47     51.43 to 54.18(2)
Alternative
Cash Alternative                        45.00               45.00
(1) Equivalent value is based on the nominal value of the Secured Loan Notes and an exchange rate of GBP1/US$1.82. (2) Based on Broadview's valuation of the Secured Loan Notes of between 78 per cent. and 88 per cent. of nominal value.

Based on the nominal value of the Secured Loan Notes and assuming an exchange rate of GBP1/US$1.82:

- The Secured Loan Note Offer values the existing issued share capital of Xenova at approximately GBP26.1 million (US$47.5 million) and each Xenova Share at approximately 6.044 pence (US11 cents, equivalent to US110 cents per ADS) and represents a premium of 56 per cent. to the Closing Price of 3.875 pence per Xenova Share on 23 June 2005, the last trading day immediately prior to this announcement.

- The Cash and Secured Loan Note Alternative values the existing issued share capital of Xenova at approximately GBP24.8 million (US$45.1 million) and each Xenova Share at approximately 5.75 pence (US 10.5 cents, equivalent to US 105 cents per ADS) and represents a premium of 48 per cent. to the Closing Price of 3.875 pence per Xenova Share on 23 June 2005, the last trading day immediately prior to this announcement.

- The Cash Alternative values the existing issued share capital of Xenova at approximately GBP19.4 million (US$35.3 million) and each Xenova Share at 4.5 pence (US 8.2 cents, equivalent to US 82 cents per ADS) and represents a premium of 16 per cent. to the Closing Price of 3.875 pence per Xenova Share on 23 June 2005, the last trading day immediately prior to this announcement.

Xenova and Celtic X Licensee (a member of the Celtic Pharma Group) have also concluded an exclusive worldwide licence agreement in respect of Xenova's nicotine and cocaine vaccines for the treatment of drug addiction, TA-NIC and TA-CD. Separately, Celtic X Licensee has agreed to make available to Xenova a secured loan facility of up to $20 million to provide working capital for Xenova. Neither the Licence Agreement nor the facility is conditional upon the Scheme becoming effective. The Secured Loan Notes will be secured on the Licence Agreement and the rights of Celtic X Licensee under the Licence Agreement.

The Directors, who have been so advised by Lazard, have not taken a position as to the relative merits of the Secured Loan Note Offer, the Cash and Secured Loan Alternative and the Cash Alternative. However, the Directors, who have been so advised by Lazard, do believe the terms of the Cash Alternative to be fair and reasonable. In providing advice to the Directors, Lazard has taken into account the Directors' commercial assessments. Accordingly, the Directors unanimously recommend that Xenova Shareholders vote in favour of the Resolutions as they have irrevocably undertaken to do in respect of their own holdings of Scheme Shares.

The Directors of Xenova who hold Xenova Scheme Shares (being all of the Xenova Directors save for Dr Michael Young) have irrevocably undertaken to vote in favour of the Proposals in respect of their aggregate beneficial holdings of 1,204,230 Scheme Shares, representing approximately 0.279 per cent. of the issued share capital of Xenova. John Jackson, David Oxlade, Daniel Abrams and John Waterfall have informed Celtic Pharma that they will elect to receive either the Secured Loan Note Offer or the Cash and Secured Loan Note Alternative.

The Scheme will require approval of holders of Xenova Shareholders at a Court Meeting and at an Extraordinary General Meeting. The resolution to be proposed at the Extraordinary General Meeting will be to approve the Scheme and other related matters, including, inter alia, the reduction of Xenova's share capital and amendments to the Xenova Articles required to implement the Scheme. If the Scheme becomes effective it will be binding on all holders of Scheme Shares, including any holders who did not vote to approve the Scheme.

Commenting on the Proposal on behalf of the Directors of Xenova, David Oxlade, Chief Executive Officer, said:

"We believe that this offer is in the best interests of our shareholders. It is structured to provide shareholders with a choice between cash or securities with a continued participation in the future commercialisation of Xenova products. Xenova's maturing portfolio of attractive clinical programmes will require significant funding to bring them to commercialisation, which Celtic Pharma is in a position to provide. In the context of the current financing environment for biotechnology companies, this is the right solution for all Xenova stakeholders, including the patients who stand to benefit in the future from our products."

Enquiries

Celtic Pharma                    Xenova
John Mayo, Director              David Oxlade, Chief Executive
Tel - today: +44 (0)20 7831 3113 Officer
Thereafter: +44 (0)20 7786 5555  Daniel Abrams, Finance Director
Stephen Evans-Freke, Director    Tel: +44 (0)1753 706600
Tel - until 24 June: 
+44 (0)20 7831 3113
Tel - after 24 June: 
+1 212 755 3411

Broadview (Adviser to Celtic     Lazard (Adviser to Xenova)
Pharma)
Bruce Huber                      David Gluckman
Julie Langley                    Nicholas Hill
Tel: +44 (0)20 7968 8000         Tel: +44 (0)20 7187 2000

Financial Dynamics
David Yates
Ben Atwell
Tel: +44 (0)20 7831 3113
Broadview, a division of Jefferies International Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for Celtic Pharma and no one else in connection with the Proposal and will not be responsible to anyone other than Celtic Pharma for providing the protections afforded to customers of Broadview or for providing advice in relation to the Proposal, the contents of this announcement or any transaction or arrangement referred to herein.

Lazard, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for Xenova and no on else in connection with the Proposal and will not be responsible to anyone other than Xenova for providing the protections afforded to customers of Lazard or for providing advice in relation to the Proposal, the contents of this announcement or any transaction or arrangement referred to herein.

As part of the Proposal, Xenova Securityholders who are eligible to do so may choose to receive the Secured Loan Notes offer. The Secured Loan Notes to be issued pursuant to the Scheme have not been, and will not be, listed on any stock exchange and have not been, and will not be, registered under the US Securities Act or under any relevant laws of any state or other jurisdiction of the United States, nor have clearances been, nor will they be, obtained from the securities commission or similar authority of any province or territory of Canada and no prospectus has been, or will be, filled, or registration made, under any securities law of any province or territory of Canada, nor has a prospectus in relation to the Secured Loan Notes been, nor will one be, lodged with, or registered by, the Australian Securities and Investments Commission, nor have any steps been taken, nor will any steps be taken, to enable the Secured Loan Notes to be offered in compliance with applicable securities laws of Japan. Accordingly, unless an exemption under relevant securities laws is available, the Secured Loan Notes may not be offered, sold, re-sold or delivered, directly or indirectly, in, into or from a Restricted Jurisdiction in which an offer of Secured Loan Notes would constitute a violation of relevant laws or require registration of the Secured Loan Notes, or to or for the account or benefit of any resident of a Restricted Jurisdiction.

This announcement does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy any securities, nor the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issue or transfer of the securities referred to in this announcement in any jurisdiction in contravention of applicable law or regulation.

This summary should be read in conjunction with the full text of the following announcement. Appendix I to the following announcement contains certain conditions to the implementation and operation of the Scheme. Appendix II contains definitions of certain expressions used in this summary and in the following announcement.

Under the provisions of Rule 8.3 of the City Code, any person who, alone or acting together with any other person(s) pursuant to an agreement or understanding (whether formal or informal) to acquire or control relevant securities of Xenova, owns or controls, or becomes the owner or controller, directly or indirectly, of one per cent. or more of any class of securities of Xenova is required to disclose, by not later than 12.00 noon (London time) on the London business day following the date of the relevant transaction, dealings in such securities (or in any option in respect of, or derivative referenced to, any such securities) during the offer period.

Under the provisions of Rule 8.1 of the City Code, all dealings in relevant securities of Xenova by Xenova or Celtic Pharma, or by any of their respective "associates" (within the meaning of the City Code) must also be disclosed.

If you are in any doubt as to the application of Rule 8 to you, please contact an independent financial adviser authorised under FSMA 2000, consult the Panel's website at www.thetakeoverpanel.org.uk or contact the Panel on telephone +44 20 7638 0129 or by fax on +44 20 7236 7013.

This announcement includes "forward-looking statements" relating to the Proposal, the Celtic Pharma Group and Xenova that are subject to known and unknown risks and uncertainties, many of which are outside of the Celtic Pharma Group's and Xenova's control and are difficult to predict and that may cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. All statements other than statements of historical fact included in this announcement regarding the business, financial condition, results of operations of Xenova, the Xenova Group, Celtic Pharma, the Celtic Pharma Group, Celtic Pharma Holdings, Celtic X Licensee, or Celtic Pharma Capital and certain plans, objectives, assumptions, expectations or beliefs with respect to these items and statements regarding other future events or prospects, are forward-looking statements. Should one or more of the risks or uncertainties associated with such forward-looking statements materialise, or should assumptions underlying such forward-looking statements prove incorrect, actual results may vary materially from those described herein.

These statements include, without limitation, those concerning: strategy and the ability to achieve it; expectations regarding sales, expenses, profitability and growth; possible or assumed future results of operations; capital expenditure and investment plans; adequacy of capital; and financing plans. The words "seek", "aim", "may", "expect", "anticipate", "believe", "future", "continue", "help", "estimate", "plan", "intend", "should", "could", "would", "shall" and similar terms or the negative or other variations thereof, as well as other statements regarding matters that are not historical fact, are intended to identify or may constitute forward-looking statements. In addition, this announcement includes forward-looking statements relating to potential exposure to various types of market risks, such as foreign exchange rate risks, interest rate risks and other risks related to financial assets and liabilities. These forward-looking statements have been based on the current view of Xenova or Celtic Pharma management, as applicable, with respect to future events and financial performance. These views reflect the best judgement of the management of Xenova or Celtic Pharma, as applicable, but involve a number of risks and uncertainties which could cause actual results to differ materially from those predicted in forward-looking statements and from past results, performance or achievements. Although it is the belief of Xenova and Celtic Pharma, as the case may be, that the estimates reflected in the forward-looking statements are reasonable, such estimates may prove to be incorrect. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including, without limitation, the following: the inability to obtain any necessary regulatory approvals in the context of the Proposal or to obtain them on acceptable terms, the inability to integrate successfully Xenova within the Celtic Pharma Group; costs related to the Acquisition; the economic environment of the industries in which the Celtic Pharma Group and Xenova operate; costs associated with research and development; changes in the prospects for products in the pipeline or under development by Xenova; dependence on the existingmanagement of Celtic Pharma and Xenova; changes or uncertainties in UK or US federal or state tax laws or the administration of such laws; changes or uncertainties in the laws or regulations applicable to the markets in which Celtic Pharma and Xenova operate, including those of the Federal Drug Administration in the United States, and other factors detailed in Xenova's fillings with the SEC; failure to protect intellectual property rights or any infringement claims; litigation; future exchange and interest rates; economic downturn; acts or threats of terrorism; acts or the threat of war or other adverse political developments.

All subsequent written and oral forward-looking statements attributable to Celtic Pharma or Xenova or persons acting on behalf of either of them are expressly qualified in their entirety by the cautionary statements above. The forward-looking statements included herein are made only as of the date of this announcement.

  THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO
                           CANADA, AUSTRALIA OR JAPAN

FOR IMMEDIATE RELEASE

24 June 2005

                       OFFER FOR XENOVA GROUP PLC

           Recommended Proposal by Celtic Pharma for Xenova
1. Introduction

The Directors and the Board of Celtic Pharma announce that they have reached agreement on the terms of a recommended offer to be made by Celtic Pharma for the entire issued and to be issued share capital of Xenova. It is proposed that such offer be implemented by means of a scheme of arrangement between Xenova and Xenova Securityholders under section 425 of the Act.

Xenova and Celtic Pharma have also concluded an exclusive worldwide licence agreement in respect of Xenova's nicotine and cocaine vaccines for addiction, TA-NIC and TA-CD. This Licence Agreement is not conditional upon the Scheme becoming effective. Separately, Celtic Pharma has agreed to make available to Xenova a secured loan facility of up to $20 million to provide working capital for Xenova. This facility is also not conditional upon the Scheme becoming effective.

2. Summary terms of the recommended Scheme

Holders of Scheme Shares (other than Restricted Overseas Persons who will receive the Cash Alternative) on the register of members as at the Scheme Record Time will receive (subject to their elections in respect of either the Cash and Secured Loan Note Alternative or the Cash Alternative):

The Secured Loan Note Offer

For every 10 Scheme Shares           US$1.10 nominal value of
or for every 1 Xenova ADS            Secured Loan Notes
                                     Equivalent to 60.44 pence
                                     assuming GBP1 = $1.82
and so in proportion for any other number of Scheme Shares or Xenova ADSs held.

The Cash and Secured Loan Note Alternative:

For every 10 Scheme Shares     30 pence in cash
or for every 1 Xenova ADS      and
                               US$0.50 nominal value of
                               Secured Loan Notes
                               In aggregate, equivalent to
                               57.47 pence assuming GBP1 =
                               $1.82
and so in proportion for any other number of Scheme Shares or Xenova ADSs held.

The Cash Alternative:

For every 10 Scheme Shares           45 pence in cash
or for every 1 Xenova ADS
In all circumstances, fractional entitlements to Secured Loan Notes will be remitted in cash and any cash payment will be rounded down to the nearest whole penny.

The Secured Loan Notes will be denominated and issued in US Dollars. The Secured Loan Notes will be issued, credited as fully paid, in multiples of US$1 nominal amount. The Secured Loan Notes will accrue compound interest at a rate of 15 per cent. per annum.

The equivalent values shown in pence throughout this announcement are calculated on an exchange rate of GBP1=US$1.82 and are provided for illustrative purposes.

Except for certain Restricted Overseas Persons those Xenova Shareholders who have either: (a) not accepted the Proposal; or (b) accepted the Proposal, but failed to submit a valid Form of Election, will be deemed to have accepted the Secured Loan Note Offer in the event that the Scheme becomes effective.

3. Valuation of the Scheme

Broadview, which is acting as financial adviser to Celtic, has advised that, in its opinion, a reasonable estimate of the current value of the Secured Loan Notes, if they had been in existence at this time, is in the range of between approximately 78 per cent. and 88 per cent. of their nominal value.

None of the Xenova Directors or Lazard is expressing an opinion as to the estimated value of the Secured Loan Notes. A letter from Broadview setting out the basis for its estimate of the value of the Secured Loan Notes will be contained in the Scheme Document. Before deciding which form of consideration to receive under the Scheme, Xenova Securityholders should consider the factors set out in paragraph 4(c) of this announcement and are strongly advised to take their own independent professional advice.

The following table sets out, for illustrative purposes only and on the bases and assumptions set out in the notes below, the financial effects on capital value for a holder of 10 Xenova Shares assuming the Scheme becomes effective. It compares the value of the Secured Loan Notes issued and the amount of cash due under the Cash and Secured Loan Note Alternative and the Cash Alternative in respect of 10 Xenova Shares with the value of 10 Xenova Shares on 23 June 2005 (the last trading day immediately prior to the Announcement Date). In assessing the financial effects of the Scheme, no account has been taken of any potential liability to taxation of a Xenova Securityholder or ability to defer taxation.

                          Secured Loan      Cash and          Cash
                            Note Offer  Secured Loan   Alternative
                                                Note
                                         Alternative

MARKET VALUE OF 10 XENOVA        38.75         38.75         38.75
SHARES ON 23 JUNE GBP/p
Value as at 23 June
Nominal value of Secured         60.44         27.47             -
Loan Notes (p)
Current value of Secured      47.14 to      21.43 to             -
Loan Notes(1) (p)                53.19         24.18
Cash consideration (p)               -         30.00         45.00
                                  ____          ____          ____
Total current value (inc.     47.14 to      51.43 to         45.00
cash where relevant) (p)         53.19         54.18         ____
                                  ____          ____
Increase in capital           21.7% to      32.7% to          16.1%
value                            37.3%         39.8%
Total current value (inc.  GBP20.3m to   GBP22.2m to      GBP19.4m
cash where relevant)          GBP23.0m      GBP23.4m
(GBPm)
Value of the entire issued    GBP26.1m      GBP24.8m      GBP19.4m
share capital of Xenova(2)

Value at time of
redemption of Secured Loan
Notes
Value assuming redemption        60.44         57.47         45.00
at par of Secured Loan
Notes after 24 months(3)
(p)
Value assuming redemption        79.93         66.33         45.00
or conversion of Secured
Loan Notes at par plus
compound interest after 24
months(4) (p)
Value of Secured Loan           139.80         93.54         45.00
Notes after 72 months(5)
(p)
Notes

(1) Based on the Broadview valuation of the Secured Loan Notes in the range of 78% to 88% of their nominal value.

(2) Based on the nominal value of the Secured Loan Notes and an exchange rate of GBP1/US$1.82.

(3) Assuming that Celtic Pharma does not exercise its call option to purchase all of the outstanding Secured Loan Notes before being able to make Pharmaceutical Investment Notes available to Noteholders (in which event, Noteholders would be entitled to have their Secured Loan Notes redeemed for nominal value plus Compound Interest) and assuming that, at the time of purchase, Noteholders do not instead choose to exchange their Secured Loan Notes for Pharmaceutical Investment Notes if and when they are made available.

(4) Assuming either that Celtic Pharma redeems all of the outstanding Secured Loan Notes without making available Pharmaceutical Investment Notes (in which event, Noteholders would be entitled to have their Secured Loan Notes redeemed for nominal value plus Compound Interest) or that a Noteholder elects to receive Pharmaceutical Investment Notes in the event that Pharmaceutical Investments Notes are made available by Celtic Pharma (in which case, Noteholders would receive Pharmaceutical Investment Notes with a nominal value equal to the nominal value of the Secured Loan Notes plus Compound Interest). Celtic Pharma has confirmed that it intends to structure the offering of Pharmaceutical Investment Notes such that they trade initially at or around par at the time of listing.

(5) Assuming Secured Loan Noteholders choose to receive Pharmaceutical Investment Notes at redemption and receive Compound Interest for a further four years until redemption of the Pharmaceutical Investment Notes.

4. The Secured Loan Notes

The Secured Loan Notes will be denominated and issued in US Dollars. The Secured Loan Notes will be issued, credited as fully paid, in multiples of US$1 nominal amount. The Secured Loan Notes will accrue compound interest at a rate of 15 per cent. per annum.

(a) Security arrangements and ring-fencing

Celtic Pharma is a public limited liability company incorporated under the laws of England and Wales for the purposes of making the Proposal. Celtic Pharma is a subsidiary of Celtic X, a limited liability company incorporated under the laws of Malta. Celtic X is a subsidiary of Celtic Pharma Capital, also a limited liability company incorporated under the laws of Malta, which is a subsidiary of Celtic Pharma Holdings, a Bermuda-based limited partnership established by John Mayo and Stephen Evans-Freke in October 2004. Celtic Pharma Holdings' general partner is Celtic Pharma General L.P., which is itself a limited partnership which is managed by its general partner, Celtic Pharma GP Ltd, a limited liability company incorporated under the laws of Bermuda. Celtic X Licensee is a subsidiary of Celtic Pharma Capital.

The Secured Loan Notes will be secured against the rights of Celtic X Licensee under the Licence Agreement, which are in respect of TA-CD and TA-NIC. Additionally, Celtic Pharma intends to put in place certain other arrangements for the benefit of Noteholders as follows:-

- Neither Celtic Pharma Holdings nor any other members of the Celtic Pharma Group with respect to which Celtic Pharma Capital is a subsidiary shall receive payments of principal in relation to the Facility Agreement until the earlier of the Exchange Date and the Long Stop Date save that this shall be without prejudice to the set-off provisions contained in the Facility Agreement.

- Neither Celtic Pharma Holdings nor any other members of the Celtic Pharma Group with respect to which Celtic Pharma is a subsidiary will be entitled to receive any dividends or distributions of capital from any of Celtic Pharma or Xenova until the earlier of the Exchange Date and 40 days from and including the Long Stop Date. Any amounts realised in relation to the assets of either Xenova or its subsidiaries prior to that time will be retained or reinvested in the development of the assets of Xenova or its subsidiaries until the earlier of the Exchange Date and 40 days from and including the Long Stop Date.

- Celtic Pharma will, under the terms of the Secured Loan Note Instrument, be precluded from incurring any indebtedness or any security interest relating to such indebtedness which would rank in seniority to the Secured Loan Note.

- Celtic Pharma shall on or before the issuance of the Secured Loan Notes procure a guarantor which shall irrevocably and unconditionally undertake with Celtic Pharma and the Noteholders from time to time on the terms of the guarantee annexed to the Secured Loan Instrument to guarantee payments in respect of the principal amount of the Secured Loan Notes and interest (if any) payable in cash under the Secured Loan Note Instrument. This guarantee will cease on the earlier of (i) the Exchange Date; and (ii) 40 days from and including the Long Stop Date.

- As part of this transaction, Celtic Pharma agrees that it will not grant security in respect of the assets of the Xenova Group save for the Licence Agreement, save for the ability to grant security in respect of such assets for the Pharmaceutical Investment Notes (if issued) into which the Secured Loan Notes will be exchangeable.

(b) Exchange rights into Pharmaceutical Investment Notes and options to redeem Secured Loan Notes

The Secured Loan Notes will be issued in certificated form and will not be transferable except to any member of the Celtic Pharma Group or, at the time of issue, by the ADS Depositary to the registered holders of Xenova ADSs. Celtic Pharma may transfer its obligations under the Secured Loan Notes to any other member of the Celtic Pharma Group.

Celtic Pharma has agreed to use all reasonable endeavours to procure that, on or prior to the Long Stop Date (expected to be in August 2007), Pharmaceutical Investment Notes will be made available to Noteholders in exchange for the Secured Loan Notes then held by them and that these Pharmaceutical Investment Notes will, when issued, be listed and admitted to trading on a Regulated Market or such other major stock exchange as Celtic Pharma Capital shall reasonably determine. When such Pharmaceutical Investment Notes are made available, each Noteholder will be entitled to elect to either:

(i) receive cash in an amount equal to the nominal US Dollar value of the Secured Loan Notes (but not including any Compound Interest which shall not be payable) then held by him, and payable in US Dollars; or

(ii) receive Pharmaceutical Investment Notes with a nominal value equal to the aggregate of: (a) the nominal amount of the Secured Loan Notes then held by him; and (b) Compound Interest accrued up to (but not including) the date of issue of the Pharmaceutical Investment Notes. Celtic Pharma has confirmed that it intends to structure the offering of Pharmaceutical Investment Notes such that they trade initially at or around par at the time of listing.

In addition, under the terms of the Secured Loan Notes, Celtic Pharma will, at any time after the Scheme Effective Date and prior to the issue of the Pharmaceutical Investment Notes, be entitled to exercise the Loan Note Call Option to require the Noteholders to transfer to it or another member of the Celtic Pharma Group all of the Secured Loan Notes then held by them for a cash amount equal to the aggregate of: (a) their nominal value; and (b) Compound Interest accrued up to but not including the date of transfer.

If Celtic Pharma does not exercise this Loan Note Call Option, Celtic Pharma will, under the terms of the Secured Loan Note Instrument, be obliged to use all reasonable endeavours to procure that Pharmaceutical Investment Notes are made available to Noteholders on or prior to the Long Stop Date and that they are listed as aforesaid. If Celtic Pharma is unable to make Pharmaceutical Investment Notes available to Noteholders on this basis, it shall have no liability to Noteholders for not making them available but will be required to inform the Noteholders of this on or prior to the Long Stop Date, as a result of which Noteholders will then be entitled to require Celtic Pharma to purchase their Secured Loan Notes for a cash amount equal to the aggregate of: (a) their nominal value as at the date of such notice; and (b) Compound Interest accrued up to but not including the date of such purchase.

Xenova Securityholders should consider the factors set out in paragraph 4(c) below of this announcement and are strongly advised to take their own independent professional advice before deciding whether to accept Secured Loan Notes under the Scheme.

(c) Factors to consider in relation to the Secured Loan Notes

When considering whether or not to receive Secured Loan Notes pursuant to the Scheme, the attention of Xenova Securityholders is drawn to the matters set out below. In addition, Xenova Securityholders are strongly advised to take their own independent professional advice before deciding to receive Secured Loan Notes under the Scheme. Xenova Securityholders are recommended carefully to consider, in the light of their own investment objectives and having taken advice appropriate to their own financial circumstances, whether or not they wish to receive the Secured Loan Notes.

The main quantitative factor a Xenova Securityholder should consider in favour of receiving Secured Loan Notes is the high rate of return that the Secured Loan Notes will offer in the event that they are redeemed (including Compound Interest accrued) or converted into Pharmaceutical Investment Notes with a nominal value equal to the aggregate of: (a) the nominal amount of the Secured Loan Notes then held by him; and (b) Compound Interest accrued up to (but excluding) the date of the issue of the Pharmaceutical Investment Notes. Celtic Pharma has confirmed that it intends to structure the offering of Pharmaceutical Investment Notes such that they trade initially at or around par at the time of listing. Potential returns on Secured Loan Notes are set out below.

                                        Percentage     Percentage
                                            uplift         uplift
                                      after 1 year  after 2 years
Secured Loan Note Offer                      79.4%         106.3%
Cash and Secured Loan Note                   58.9%          71.2%
Alternative
                                          IRR over       IRR over
Secured Loan Note Offer                     1 year        2 years
Cash and Secured Loan Note                   79.4%          43.6%
Alternative                                  58.9%          30.8%
Implied IRRs in relation to acquiring       110.6%          55.6%
US$0.50 cents of Secured Loan Notes
and giving up 15 pence of cash by
accepting the Cash and Secured Loan
Note Alternative rather than
accepting the Cash Alternative
Note: Calculations assume an exchange rate of GBP1/US$1.82 and compare to Xenova's Closing Price of 3.875 pence per Xenova Share on 23 June 2005, the last trading day immediately prior to this announcement.

The qualitative factors to consider in favour of receiving Secured Loan Notes are the structural issues set out in paragraph 4(a) that are designed to provide protections to Secured Loan Noteholders.

Factors to consider in favour of not receiving Secured Loan Notes

- This is Celtic Pharma's first acquisition.

- The Secured Loan Notes will not be listed on any stock exchange and are not transferable (other than to members of the Celtic Pharma Group or, at the time of issue by the ADS Depositary to the registered holders of Xenova ADSs). Therefore Xenova Securityholders who receive Secured Loan Notes will be unable to sell them prior to their being either redeemed or converted into listed Pharmaceutical Investment Notes.

- The security arrangements in relation to the Secured Loan Notes remain to be finalised with the Security Trustee. There can be no certainty that the Security Trustee will not require amendments to such arrangements.

- There is no certainty that at the time Celtic Pharma seeks to or is required at the Long Stop Date to redeem the Secured Loan Notes, it will have sufficient of its own resources so to do or the ability to draw down from its investors sufficient funds to meet any shortfall.

- There is no certainty that if the security arrangement in relation to the Secured Loan Notes is required to be enforced, there will be assets subject to the security arrangement with realisable value at that time that is sufficient to meet in full Celtic Pharma's obligations to holders of Secured Loan Notes.

- The Secured Loan Notes will be denominated in US Dollars the value of which may be affected by currency fluctuations.

The above does not necessarily represent all of the factors that should be considered in connection with the Secured Loan Notes. Other factors that should be considered in relation to deciding whether to receive the Secured Loan Notes include, but are not limited to the tax implications that relate to Xenova Securityholders personally in respect of the Secured Loan Notes including any withholding tax which may be payable in respect of any interest payments made in relation to the Secured Loan Notes.

The Directors of Xenova, who have been so advised by Lazard, believe that all of these are factors to which consideration should be given by Xenova Securityholders in determining their own intentions in respect of the Secured Loan Notes. However, there may be other factors not included here which an individual Xenova Securityholder should consider when determining whether or not to make an election for Secured Loan Notes. Having taken advice appropriate to their own financial circumstances, Xenova Securityholders should form their own view as to whether or not the Secured Loan Notes represent a suitable investment opportunity in the light of their own investment objectives.

5. Factors Relating To The Pharmaceutical Investment Notes

Celtic Pharma Capital, of which Celtic Pharma is a subsidiary, intends to establish, by no later than the Long Stop Date, a note programme (the "Note Programme") pursuant to which Celtic Pharma Capital may issue, from time to time, different series of limited recourse Pharmaceutical Investment Notes or other limited recourse debt obligations which will be secured by a floating charge over the intellectual property assets of Celtic Pharma Capital as acquired from time to time, including, patent licences, sub-licences or other similar contractual intellectual property rights in respect of pharmaceutical intellectual property held by Celtic Pharma Capital or affiliates of Celtic Pharma Capital and all or a portion of the proceeds of the foregoing. Any such assets will be assigned to a security trustee and held in a collateral trust for the benefit of the holders of the Pharmaceutical Investment Notes issued pursuant to the Note Programme. Additionally, Celtic Pharma Capital intends to retain discretion to transfer or sell any of the assets set out above, from time to time, provided that certain proceeds thereof are retained by the security trustee in cash or other highly liquid investments to be used to repay the relevant Pharmaceutical Investment Noteholder.

In the event that Celtic Pharma Capital establishes the Note Programme, Celtic Pharma Capital intends initially to issue an aggregate principal amount of Pharmaceutical Investment Notes equal to the then outstanding principal amount of the Secured Loan Notes and effect an exchange therefor. If issued, the Pharmaceutical Investment Notes should enable Xenova Shareholders who receive Secured Loan Notes and who then elect to receive Pharmaceutical Investment Notes, to realise returns with a preferred position in relation to equity investors in Celtic Pharma Holdings. As stated, it is intended that the security pool upon which the Pharmaceutical Investment Notes will be secured will include other pharmaceutical products and programmes acquired by Celtic Pharma Capital. This means that, if this is achieved, the holders of Secured Loan Notes who elect to exchange their Secured Loan Notes for Pharmaceutical Investment Notes should benefit from a more diversified security pool of assets with a commensurate increase in credit quality. Celtic Pharma Group has stated that it is its intention to continue to add to the security pool with more acquired assets, involving equity funding by Celtic Pharma Group of at least 40 per cent of their purchase and development cost. Therefore the security pool and the size of the Celtic Pharma Group equity contribution is expected to grow to the benefit of Pharmaceutical Investment Noteholders. The Pharmaceutical Investment Notes will rank ahead of the rights of equity investors in Celtic Pharma Capital with respect to distributions or sale proceeds from any of the Xenova programmes.

In the event that the Pharmaceutical Investment Notes are redeemed as intended, they would realise an uplift in value as compared to Xenova's Closing Price of 3.875 pence per Xenova Share on 23 June 2005, the last trading day immediately prior to this announcement, of at least 261 per cent (reflecting the minimum 15 per cent compound return on the original face value and the premium of the original face value to the share price on 23 June 2005) on the sixth anniversary of issuance of the Secured Loan Notes. This equates to approximately 14.0 pence per Xenova Share at that time.

In addition to the potential return in relation to the Pharmaceutical Investment Notes, Xenova Securityholders' attention is drawn to the fact that the right to receive listed Pharmaceutical Investment Notes before or at the Long Stop Date is subject to the creation of such notes, however:

- Celtic Pharma Capital may be unable to procure the listing of the Pharmaceutical Investment Notes prior to the Long Stop Date.

- As a result of too few Pharmaceutical Investment Notes being issued as consideration for acquisitions or directly to investors for cash, it may be that once listed there are insufficient Pharmaceutical Investment Notes in issue for there to be liquid trading in Pharmaceutical Investment Notes.

- The eventual ability of Celtic Pharma Capital to redeem the Pharmaceutical Investment Notes will depend on Celtic Pharma Group's ability successfully to develop the products it acquires into the pool of security intended to be created by Celtic Pharma Capital and to realise value from these products. Beyond the products to be acquired through the acquisition of Xenova, the identity and nature of the products that Celtic Pharma Group will eventually acquire is unknown as is the amount of Pharmaceutical Investment Notes that may be issued or other liabilities that may be incurred in relation to such acquisitions.

Celtic Pharma Group have confirmed that the terms of the Pharmaceutical Investment Notes will be no less favourable to the holders of the Pharmaceutical Investment Notes than those of the Secured Loan Notes and will otherwise be made available on such other terms as Celtic Pharma Capital shall reasonably determine. The detailed terms of the Pharmaceutical Investment Notes are unknown, however Celtic Pharma has confirmed that it intends to structure the offering of Pharmaceutical Investment Notes such that they trade initially at or around par at the time of listing. Nevertheless, whilst the Pharmaceutical Investment Notes are intended to be listed and therefore freely tradable, it is unlikely that the Pharmaceutical Investment Notes will be guaranteed or contain provisions expressly allowing for the Pharmaceutical Investment Notes to be exchanged for other securities or for cash other than upon a redemption in the ordinary course or pursuant to the compulsory acquisition procedures relating to the Investment Company Act described in paragraph 24 below. The eventual economic characteristics that will underlie the Pharmaceutical Investment Notes cannot be known at the current time. Therefore none of the Directors or Lazard is expressing an opinion as to whether or not the Pharmaceutical Investment Notes will be issued or, in the event that they are, as to their estimated value at that time. Further details of the Pharmaceutical Investment Notes and the Pharmaceutical Investment Note Programme will be set out in the Scheme Document.

6. Background to and reasons for the recommendation

The Xenova Group has focused over the last few years on the development of novel drugs to treat cancer and addiction with a secondary focus in immunotherapy. The Xenova Group currently has a number of products in various stages of development. However these products require substantial further investment in order to complete the clinical trials and other activities needed before marketing authorisation can be sought.

Xenova stated in its preliminary results for the year ended 31 December 2004, which were announced on 3 March 2005, that it would have insufficient funds for the subsequent twelve months. As a result, the Board of Xenova has vigorously explored options for raising further cash, including a fundraising or a sale of the Company. Discussions with existing and potential investors took place in the first quarter of 2005 with a view to providing the Xenova Group with the necessary working capital to advance its core programmes. Discussions have also been held with a number of alternative potential licensees for the Xenova Group's products and potential merger partners and acquirers, including Celtic Pharma.

Xenova has today entered into the Licence Agreement with Celtic X Licensee for the world-wide development and marketing of Xenova's conjugated therapeutic vaccines, TA-CD and TA-NIC. The Directors of Xenova believe that the terms of the Licence Agreement are fair and reasonable. However the immediate payments due under the Licence will not fundamentally alter Xenova's medium term financial position.

Celtic Pharma's offer structure enables Xenova Securityholders to choose between the certainty of cash at a premium to the current Xenova Share price or possibly higher returns in the form of Secured Loan Notes.

7. Information on Xenova

Xenova is a bio-pharmaceutical company which was incorporated and registered in England on 19 March 1992 under the Act. The Company, which acquired Cantab Pharmaceuticals Plc in April 2001 and acquired KS Biomedix Holdings plc in September 2003, is focused on the development of novel commercially attractive drugs, primarily for the treatment of cancer and addiction with a secondary focus on immunotherapy. The Xenova Group currently has six programmes in clinical development, including new chemical entities for the treatment of addiction. The Xenova Group has in its ownership, or licensed to it, a total of approximately 43 families of patent application and/or has granted patents.

Based in Slough and Cambridge in the UK and Philadelphia in the United States, the Xenova Group currently employs approximately 72 full-time employees at its three locations of whom approximately 49 are directly involved in drug development or manufacturing. The Xenova Group's head office is located in Slough while the Xenova Group's addiction vaccine activities are carried out at its Cambridge site. The US office, located in Philadelphia, runs the US side of the TransMID Phase III clinical trial. The Xenova Group also has a biological manufacturing plant located at the Cambridge site, which is used for the production of clinical grade materials for its own clinical trials and for contract manufacturing on behalf of third party clients.

The Xenova Group seeks to commercialise its development products through partnering with major biopharmaceutical companies. It considers the optimal timing for partnering on a project by project basis following an assessment of the scientific and commercial risks and returns for each individual project. However, in general, a licensing partner will be sought to assist with Phase III trials and to take on the marketing and distribution of the product.

For the year ended 31st December 2004, in accordance with generally accepted accounting principles in the United Kingdom, Xenova reported turnover of GBP4.6 million (2003: GBP7.7 million) with a loss on ordinary activities before taxation of GBP14.1 million (2003: GBP16.0 million), net assets of GBP35.9 million (2003: GBP48.3 million) and cash, short term deposits and investments of GBP12.9 million (2003: GBP27.5 million).

8. Information on Celtic Pharma Holdings and the Celtic Pharma Group and Celtic Pharma's intentions regarding The Xenova Group

Celtic Pharma is a subsidiary of Celtic Pharma Holdings. Celtic Pharma Holdings is a $300m (first round) private equity fund, to which over $125 million has been committed and closed in to date, that is pursuing strategic investment opportunities in the pharmaceutical and biotechnology sectors of North America and Europe. It is anticipated that, the balance of the $300 million will be closed in by the end of 2005 and that during 2006, this will be invested or committed to future development costs of acquired projects.

Celtic Pharma Holdings intends to build a diversified portfolio of novel, innovative and potentially valuable products that are in the late stages of clinical development, in order to drive them forward through the final value building stages of clinical development to market launch.

It is Celtic Pharma's intention that Xenova will continue to be focused on the development of pharmaceuticals and it is intended that it will become Celtic Pharma's drug development vehicle in the UK, managing projects and outsourced service contracts as it does presently.

Celtic Pharma intends to invest in Xenova so that it can improve its core drug development capability. However, Celtic Pharma's ability to source new drug candidates and the fact that Xenova will become a private company will mean that some administrative and support functions will cease to exist.

Further financial information in relation to Celtic Pharma Holdings and the Celtic Pharma Group will be set out in the Scheme Document.

9. Structure of the Scheme

The Acquisition is being implemented by way of the Scheme. The Scheme involves an application by Xenova to the Court to sanction the Scheme and to confirm the cancellation of the Scheme Shares, in consideration for which Scheme Shareholders on the register of members at the Scheme Record Time will be entitled to receive the consideration described. The cancellation and the subsequent issue of new Xenova Shares to Celtic Pharma provided for in the Scheme will result in Xenova becoming a wholly-owned subsidiary of Celtic Pharma.

Before the Court's sanction of the Scheme can be sought, the Scheme will require the approval of Xenova Shareholders at the Court Meeting. The implementation of the Scheme will also require the passing by Xenova Shareholders of the special resolution to be proposed at the Extraordinary General Meeting. Further details of the structure of the Scheme will be included in the Scheme Document which will be posted in due course.

The Scheme will not become effective unless all the conditions to its implementation (which are set out in Appendix I to this announcement), including shareholder approvals and the sanction of the Court, have been satisfied (or, if capable of waiver, waived) by not later than 20 September 2005, or such later date as Celtic Pharma and Xenova shall agree and the Court may approve.

The implementation of the Scheme is conditional upon, inter alia:

(i) the Scheme becoming effective by no later than 20 September 2005, or such later date as Xenova and Celtic Pharma shall agree and the Court may approve, failing which the Scheme will lapse;

(ii) the approval by a majority in number of the Xenova Shareholders who attend and vote, representing at least three-fourths in value of the Xenova Shares voted, either in person or by proxy, at the Court Meeting;

(iii) the passing of the special resolution required to approve and implement the Scheme at the Extraordinary General Meeting;

(iv) the Scheme being sanctioned by the Court with or without any modification and confirmation of the reduction of capital involved therein by the Court;

(v) the delivery to the Registrar of Companies in England and Wales for registration of an office copy of the Court Order sanctioning the Scheme and confirming the reduction of capital and, in relation to the reduction of capital, the registration of such Court Order by the Registrar of Companies; and

(vi) the other conditions which are not otherwise identified above (set out in Appendix I of this announcement) being satisfied or, if capable of waiver, waived.

Once effective, the Scheme will become binding on all Xenova Shareholders including those who did not vote, or who voted against the Scheme, at the Meetings.

The Scheme Document will include full details of the Scheme, together with notices of the Court Meeting and the EGM and the expected timetable, and will specify the necessary action to be taken by the Xenova Shareholders.

10. Effect of the Proposal on the Xenova Share Option Schemes and the Xenova Share Plan

Holders of awards granted pursuant to the Xenova Share Plan will be entitled to receive a notice, as soon as possible following the Court sanctioning the Scheme, and thereafter will be entitled to exercise their awards within a thirty day period from the notice (to the extent not already exercisable). Holders of these awards will receive documentation in advance of their awards becoming exercisable, in order to remind them of the awards becoming exercisable and to enable them to consent to exercise prior to the awards becoming exercisable.

All subsisting options under the Xenova Share Option Schemes will become exercisable on the Court sanctioning the Scheme, to the extent they are not already exercisable. All Xenova Shares issued on the exercise of such options on or prior to the Hearing Record Date will be subject to the Scheme.

Holders of options of the Xenova Group 1992 Share Option Scheme will be entitled to exercise their options (to the extent not already exercisable) in the 6 month period immediately following the Court sanctioning the Scheme. Xenova will notify the option holders that these options will become exercisable, shortly before the date on which they will become exercisable.

Holders of options under the Xenova Group 1996 Savings Related Share Option Plan and the Xenova Group 1996 Share Option Scheme will be entitled to exercise their option on the period between the Court sanctioning the Scheme and the Scheme Effective Date. It is intended that this period will be at least 24 hours in order to enable exercise of the options. Xenova will notify the option holders that these options will become exercisable. These schemes have been approved by the HM Revenue & Customs and therefore are capable of, in some cases, gaining favourable tax treatment on exercise.

It is intended that Xenova's Articles of Association will be amended to provide for the acquisition by Celtic Pharma of any Xenova Shares issued pursuant to the exercise of options in the period after the Scheme has become effective.

11. The Xenova Warrants

Within 14 days of the Court sanctioning the Scheme, Xenova will give Xenova Warrantholders notice that pursuant to the terms of the instrument constituting the Warrants, the Warrants have become exercisable. All Warrants will then have to be exercised within 30 days of the notice after which they will cease to be exercisable. All Xenova Shares issued on the exercise of Warrants on or prior to the Hearing Record will be subject to the Scheme.

Warrants may be exercised after the Hearing Record Date. Xenova's Articles will be amended pursuant to the resolution to be proposed at the Extraordinary General Meeting to provide that following issue of the relevant Xenova Shares, such shares will be transferred to Celtic Pharma automatically on payment by Celtic Pharma of an amount per share equal to the cash payable under the Cash Alternative.

12. Management and employees

Subject to the Scheme becoming effective, Celtic Pharma has given assurances to the Directors that the existing employment rights, including pension rights, of the directors and employees of the Xenova Group will be fully safeguarded in the event of the Scheme becoming effective.

13. The Implementation Agreement

Xenova has today entered into an implementation agreement with Celtic Pharma whereby the Company and Celtic Pharma have each undertaken to take certain steps in order to implement the terms of the Scheme. In particular, the Company has undertaken to Celtic Pharma not to solicit an alternative offer, grant any new share options, enter into or recommend any licence of its intellectual property rights, sale of business or a material part of its assets, any merger (other than by way of offer), or any transaction that would require shareholders' consent.

Certain of the Company's obligations in the Implementation Agreement are made subject to the fiduciary duties of its directors.

14. The facility agreement

Xenova Limited today entered into a secured facility agreement (the "Facility Agreement") with Celtic X Licensee. Pursuant to this agreement, loans in an aggregate amount not exceeding US$20,000,000 are to be made available to Xenova Limited by Celtic X Licensee subject to the satisfaction of certain conditions precedent, and on the terms set out therein. The loans are to be advanced in two tranches, each in an amount of up to US$10,000,000. The first tranche is to be made available for drawdown on the date Xenova Limited is notified by Celtic X Licensee of the satisfaction of certain conditions precedent (the "Effective Date"), with the second tranche to be made available 12 months thereafter. The loans are to bear interest at a rate of 2 per cent. per annum over LIBOR from the date of drawdown, and will be repayable on the date falling 48 months after the Scheme Effective Date, absent the exercise of any right under the Facility Agreement for their prior repayment. Xenova Limited is obliged to apply the amounts borrowed under the Facility Agreement in or towards its general corporate purposes, save in certain circumstances, where it will be required to apply such amounts in satisfaction of certain items of ordinary business expenditure approved in advance by Celtic X Licensee. As security for the obligations of Xenova Limited under the Facility Agreement, each of Xenova Limited and its affiliate, Xenova Biomedix Limited, will upon drawdown execute a charge granting security over certain intellectual property rights in favour of Celtic X Licensee.

15. The Licence Agreement

Xenova has today announced that it had entered into an agreement with Celtic X Licensee for the world-wide development and marketing of Xenova's conjugated therapeutic vaccines, TA-CD and TA-NIC.

Under the terms of this agreement, Xenova has granted to Celtic X Licensee world-wide rights to develop and commercialise TA-CD and TA-NIC. The licence is exclusive for the fields of the treatment of cocaine and nicotine addiction respectively. Celtic X Licensee has the right to have further indications included within the licence ahead of those rights to other indications being licensed to other third parties. Celtic X Licensee will be responsible for the conduct of future clinical studies and commercialisation activities with TA-CD and TA-NIC and will pay royalties on sales of these indications. Celtic X Licensee will also make milestone payments during the progress of the development and commercialisation.

Lazard which has taken account of the Director's commercial assessments of the Licence Agreement, considers the terms of the Licence Agreement to be fair and reasonable.

16. Delisting and re-registration

The London Stock Exchange and the UKLA will be requested respectively to cancel trading in Xenova Shares on the London Stock Exchange's market for listed securities with effect from the close of business on the Business Day immediately prior to the Scheme Effective Date and the delisting of Xenova Shares from the Official List with effect from 8.00 a.m. on the Scheme Effective Date. Celtic Pharma also intends to procure that Xenova applies for the delisting of the Xenova ADSs from NASDAQ.

It is also proposed that, following the Scheme Effective Date and after the Xenova Shares and ADSs are delisted, Xenova will be re-registered as a private company under the relevant provisions of the Act.

17. Overseas shareholders

The implications of the Scheme for persons resident in, or citizens of, jurisdictions outside the UK and the United States (including, without limitation, any nominee, custodian or trustees who may have an obligation to forward any document in connection with the Scheme outside the UK or the US) ("Overseas Shareholders") may be affected by the laws and regulations of the relevant jurisdiction. Such Overseas Shareholders should inform themselves about and observe any applicable legal requirements. It is the responsibility of each Overseas Shareholder to satisfy himself as to the full observance of the laws and regulations of the relevant jurisdiction in connection therewith, including the obtaining of any governmental, exchange control or other consents which may be required, or the compliance with other necessary formalities which are required to be observed and the payment of any issue, transfer or other taxes due in such jurisdiction.

Restricted Overseas Persons may not be entitled to receive Secured Loan Notes (and or Pharmaceutical Investment Notes if they are issued) and may be entitled to receive only cash consideration as if they had elected for the Cash Alternative in full.

The Secured Loan Notes to be issued in connection with the Scheme may not be offered, sold or delivered, directly or indirectly, in or into Canada, Australia or Japan, (except in transactions exempt from or not subject to the relevant securities laws of those jurisdictions).

The Secured Loan Notes will not be transferable (except to any member of the Celtic Pharma Group or, at the time of issue, by the ADS Depositary to the registered holders of Xenova ADSs) and have not been, nor will they be, listed on any stock exchange or registered under the US Securities Act or under any relevant laws of any state or other jurisdiction of the United States, nor have clearances been, nor will they be, obtained from the securities commission or similar authority of any province or territory of Canada and no prospectus has been or will be filed, or registration made, under any securities law of any province or territory of Canada, nor has a prospectus in relation to the Secured Loan Notes been, nor will one be, lodged with or registered by the Australian Securities and Investments Commission nor have any steps been taken, nor will any steps be taken, to enable the Secured Loan Notes to be offered in compliance with applicable securities laws of Japan. Accordingly, Secured Loan Notes may not be transferred, offered, sold, re-sold or delivered, whether or not directly or indirectly, in, into or from a Restricted Jurisdiction or any jurisdiction in which an offer of Secured Loan Notes would constitute a violation of relevant laws or require registration of the Secured Loan Notes, or to or for the account or benefit of any resident of a Restricted Jurisdiction.

The availability of the Proposal to persons not resident in the UK may be affected by the laws of the relevant jurisdiction in which they are located. Such persons should inform themselves about and observe any available requirements. Further details in relation to Overseas Shareholders will be contained in the Scheme Document.

Further information for Overseas Shareholders will be set out in the Scheme Document.

18. Certain Further Terms of the Secured Loan Notes and the Pharmaceutical Investment Notes

The Secured Loan Notes and Pharmaceutical Investment Notes will be issued in reliance upon the exemptions from the registration requirements of the US Securities Act provided by Sections 3(a)(10) and 3(a)(9) respectively and, as a consequence, will not be registered thereunder or under the securities laws of any state or other jurisdiction of the United States. For the purposes of qualifying for the Section 3(a)(10) exemptions from the registration requirements of the US Securities Act and the securities laws of certain states (as described above) Celtic Pharma and Xenova will advise the Court that its sanctioning of the Scheme will be relied upon by Xenova and Celtic Pharma as an approval of the Scheme following a hearing on its fairness to Xenova Securityholders at which hearing all such Xenova Shareholders are entitled to attend in person or through counsel to support or oppose the sanctioning of the Scheme and with respect to which notification has been given to all Xenova Securityholders. Upon completion of the Scheme, Celtic Pharma will cause Xenova to delist its ADSs from NASDAQ, terminate the Depository Agreement with Bank of New York and to terminate its registration under Section 12 of the United States Securities and Exchange Act of 1934. Thereafter Xenova will cease to file with the US Securities and Exchange Commission the periodic reports (e.g., annual and quarterly reports) that Xenova currently files. Celtic Pharma will not register the Secured Loan Notes or the Pharmaceutical Investment Notes under the US Securities and Exchange Act of 1934, and thus will not be required following the completion of the Scheme to file any reports with the US Securities and Exchange Commission. Holders of Loan Notes and Pharmaceutical Investment Notes will be entitled to receive a copy of the annual audited accounts of Celtic Pharma or Celtic Pharma Capital, as the case may be.

Celtic Pharma shall on or before the issuance of the Secured Loan Notes procure a Guarantor which shall irrevocably and unconditionally undertake with Celtic Pharma and the Noteholders from time to time on the terms of the Guarantee to guarantee payments in respect of the principal amount of the Secured Loan Notes and interest (if any) payable in cash under the Secured Loan Note Instrument. The Guarantee will cease on the earlier of (i) the date of the completion of the transfer of Secured Loan Notes; or (ii) 40 days from and including the Long Stop Date.

The Pharmaceutical Investment Notes (if issued) will be issued to US holders of the Secured Loan Notes in reliance upon the exemption from the registration requirement of the US Securities Act of 1933 provided by Section 3(a)(9) thereof and, as a consequence, will not be registered thereunder or under the securities laws of any state or other jurisdiction of the United States.

It is possible that Celtic Pharma Capital, as the issuer of the Pharmaceutical Investment Notes, may in the future be required to register as an investment company under Section 3(c)(7) of the Investment Company Act as a result of Pharmaceutical Investment Notes, including the Pharmaceutical Investment Notes of any future Series, being offered or sold in the United States or to US Persons.

The additional and different obligations involved with registering as an investment company under the Investment Company Act are costly in both financial terms and management time, and confer no material benefit on Celtic Pharma Capital.

Celtic Pharma Capital will be exempt from the obligation to register as an investment company under the Investment Company Act to the extent that the only US persons to whom the Pharmaceutical Investment Notes have been offered or sold are "Qualified Purchasers" within the meaning of the Investment Company Act.

Accordingly, it will be one of the Pharmaceutical Investment Note Terms that, if Celtic Pharma Capital becomes, or the directors of Celtic Pharma Capital have reasonable grounds to believe that Celtic Pharma Capital might become, an investment company for the purposes of the Investment Company Act, Celtic Pharma Capital will be entitled to serve a mandatory transfer notice on any Pharmaceutical Investment Noteholder who is a US Person and who is not a Qualified Purchaser (within the meaning of the Investment Company Act) requiring such Pharmaceutical Investment Noteholder either to have his Pharmaceutical Investment Notes redeemed by Celtic Pharma Capital or, at the option of Celtic Pharma Capital, transfer his Pharmaceutical Investment Notes to such other person as Celtic Pharma Capital may specify in either case for a consideration equal to the market value of the Pharmaceutical Investment Notes held by such Pharmaceutical Investment Noteholder. For these purposes, the market value of the Pharmaceutical Investment Notes which are the subject of a mandatory transfer notice will either be determined by reference to the average of the aggregate closing middle market value of the Pharmaceutical Investment Notes over the 5 Business Days immediately preceding the date of the mandatory transfer notice as shown on the register maintained by the exchange on which the Pharmaceutical Investment Notes are traded or such other equitable calculation as shall be set out in the Pharmaceutical Investment Terms.

19. General

In accordance with Rule 2.10 of the City Code, Xenova confirms that it has the following relevant securities in issue:

Xenova Shares                      431,547,821   (ISIN
                                                 GB0009850008)
Xenova Warrants                     56,259,429   (ISIN
                                                 GB0033872499)
Options under the Xenova Share      25,157,977
Option Schemes
Save for the irrevocable undertakings described in this announcement, neither Celtic Pharma nor, so far as Celtic Pharma is aware, any person acting in concert with Celtic Pharma for the purposes of the Proposal owns or controls any Xenova Shares or any securities convertible into Xenova Shares or any rights to subscribe for, or options, including traded options, in respect of, or derivatives referenced to, any such shares which remain outstanding on 23 June 2005, being the last trading day prior to the date of this announcement ("relevant Xenova securities") nor does any such person have any arrangement in relation to relevant Xenova securities. For these purposes, "arrangement" includes an indemnity or option arrangement, any agreement or understanding, formal or informal of whatever nature relating to the Xenova Shares which may be an inducement to deal or refrain from dealing in such shares.

20. Recommendation

The Directors, who have been so advised by Lazard, have not taken a position as to the relative merits of the Secured Loan Note Offer, the Cash and Secured Loan Alternative and the Cash Alternative. However, the Directors who have been so advised by Lazard, do believe the terms of the Cash Alternative to be fair and reasonable. In providing advice to the Directors, Lazard has taken into account the Directors' commercial assessments. Accordingly, the Directors unanimously recommend that Xenova Shareholders vote in favour of the Resolutions as they have irrevocably undertaken to do in respect of their own holdings of Scheme Shares.

None of the Xenova Directors or Lazard is expressing an opinion as to the estimated value of the Secured Loan Notes. Xenova Securityholders should consider carefully the factors set out in paragraph 4(c) of this announcement in light of their own investment objectives, and are strongly advised to take their own independent professional advice before deciding whether to accept Secured Loan Notes, and/or whether to make an election for the Cash Alternative under the Scheme.

In addition, the detailed terms of the Pharmaceutical Investment Notes and of the eventual economic characteristics that will underlie them cannot be known at the current time. Therefore none of the Xenova Directors nor Lazard is expressing an opinion as to whether or not the Pharmaceutical Investment Notes will be issued or, in the event that they are, as to their estimated value at that time. Xenova securityholders should consider the factors set out in paragraph 5 of this announcement in relation to the Pharmaceutical Investment Notes and are strongly advised to take their own independent professional advise in relation to them.

The Directors who hold Xenova Scheme Shares (being all of the Directors save for Dr Michael Young) have irrevocably undertaken to vote in favour of the Proposals in respect of their beneficial holdings of 1,204,230 Scheme Shares, representing approximately 0.279 per cent. of the issued share capital of Xenova (being 431,547,821 shares) as set out below:

Name                                      Number of Scheme Shares
Daniel Abrams                                             204,040
Peter Gillett                                              21,974
Adrian Harris                                              19,539
Thomas Irwin                                               44,140
John Jackson                                              286,726
David Oxlade                                              348,975
John Rennocks                                             219,183
John Waterfall                                             59,653

Enquiries:

Celtic Pharma                   Xenova
John Mayo, Director             David Oxlade, Chief Executive
Tel - today: +44 (0)20 7831     Officer
3113                            Daniel Abrams, Finance Director
Thereafter: +44(0)20 7786 5555  Tel: +44 (0)1753 706 600
Stephen Evans-Freke, Director
Tel - today: +44 (0)20 7831
3113
Thereafter: +1 212 755 3411

Broadview (Adviser to Celtic    Lazard (Adviser to Xenova)
Pharma)
Bruce Huber                     David Gluckman
Julie Langley                   Nicholas Hill
Tel: +44 (0)20 7968 8000        Tel: +44 (0)20 7187 2000

Financial Dynamics
David Yates
Ben Atwell
Tel: +44 (0)20 7831 3113
The conditions and principal further terms of the Proposal are set out in Appendix I to this announcement. The further terms of the Proposal will be set out in the formal Scheme Document and the Forms of Election.

Appendix II contains definitions of certain expressions used in this announcement.

The Scheme Document and accompanying documentation will be despatched to Xenova Shareholders and, for information only, to Xenova Optionholders and Xenova Warrantholders as soon as practicable (and, in any event, save with the consent of the Panel, within 28 days of the Announcement Date).

The Proposal will be subject to the City Code. An offer period in relation to Xenova is deemed to have commenced with immediate effect by virtue of this announcement.

Under the provisions of Rule 8.3 of the City Code, any person who, alone or acting together with any other person(s) pursuant to an agreement or understanding (whether formal or informal) to acquire or control relevant securities of Xenova, owns or controls, or becomes the owner or controller, directly or indirectly, of one per cent. or more of any class of securities of Xenova is required to disclose, by not later than 12.00 noon (London time) on the London business day following the date of the relevant transaction, dealings in such securities (or in any option in respect of, or derivative referenced to, any such securities) during the Offer Period. Under the provisions of Rule 8.1 of the City Code, all dealings in relevant securities of by Celtic Pharma, or by any of the respective "associates" of Celtic Pharma or Xenova (within the meaning of the City Code) must also be disclosed.

If you are in any doubt as to the application of Rule 8 to you, please contact an independent financial adviser authorised under the Financial Services and Markets Act 2000, consult the Panel's website at www.thetakeoverpanel.org.uk or contact the Panel on telephone +44 20 7638 0129 or by fax on +44 20 7236 7013.

Broadview, a division of Jefferies International, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for Celtic Pharma and no one else in connection with the Proposal and will not be responsible to anyone other than Celtic Pharma for providing the protections afforded to customers of Broadview or for providing advice in relation to the Proposal, the contents of this announcement or any transaction or arrangement referred to herein.

Lazard, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for Xenova and no on else in connection with the Proposal and will not be responsible to anyone other than Xenova for providing the protections afforded to customers of Lazard or for providing advice in relation to the Proposal, the contents of this announcement or any transaction or arrangement referred to therein.

This announcement does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy any securities, nor the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issue or transfer of the securities referred to in this announcement in any jurisdiction in contravention of applicable law.

This announcement includes "forward-looking statements" relating to the Proposal, the Celtic Pharma Group and Xenova that are subject to known and unknown risks and uncertainties, many of which are outside of the Celtic Pharma Group's and Xenova's control and are difficult to predict and that may cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. All statements other than statements of historical fact included in this announcement regarding the business, financial condition, results of operations of Xenova, the Xenova Group, Celtic Pharma, the Celtic Pharma Group, Celtic Pharma Holdings or Celtic Pharma Capital and certain plans, objectives, assumptions, expectations or beliefs with respect to these items and statements regarding other future events or prospects, are forward-looking statements. Should one or more of the risks or uncertainties associated with such forward-looking statements materialise, or should assumptions underlying such forward-looking statements prove incorrect, actual results may vary materially from those described herein.

These statements include, without limitation, those concerning: strategy and the ability to achieve it; expectations regarding sales, expenses, profitability and growth; possible or assumed future results of operations; capital expenditure and investment plans; adequacy of capital; and financing plans. The words "seek", "aim", "may", "expect", "anticipate", "believe", "future", "continue", "help", "estimate", "plan", "intend", "should", "could", "would", "shall" and similar terms or the negative or other variations thereof, as well as other statements regarding matters that are not historical fact, are intended to identify or may constitute forward-looking statements. In addition, this announcement includes forward-looking statements relating to potential exposure to various types of market risks, such as foreign exchange rate risks, interest rate risks and other risks related to financial assets and liabilities. These forward-looking statements have been based on the current view of Xenova or Celtic Pharma management, as applicable, with respect to future events and financial performance. These views reflect the best judgement of the management of Xenova or Celtic Pharma, as applicable, but involve a number of risks and uncertainties which could cause actual results to differ materially from those predicted in forward-looking statements and from past results, performance or achievements. Although it is the belief of Xenova and Celtic Pharma, as the case may be, that the estimates reflected in the forward-looking statements are reasonable, such estimates may prove to be incorrect. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including, without limitation, the following: the inability to obtain any necessary regulatory approvals in the context of the Proposal or to obtain them on acceptable terms, the inability to integrate successfully Xenova within the Celtic Pharma Group; costs related to the Acquisition; the economic environment of the industries in which the Celtic Pharma Group and Xenova operate; costs associated with research and development; changes in the prospects for products in the pipeline or under development by Xenova; dependence on the existing management of Celtic Pharma and Xenova; changes or uncertainties in UK or US federal or state tax laws or the administration of such laws; changes or uncertainties in the laws or regulations applicable to the markets in which Celtic Pharma and Xenova operate, including those of the Federal Drug Administration in the United States, and other factors detailed in Xenova's fillings with the SEC; failure to protect intellectual property rights or any infringement claims; litigation; future exchange and interest rates; economic downturn; acts or threats of terrorism; acts or the threat of war or other adverse political developments.

All subsequent written and oral forward-looking statements attributable to Celtic Pharma or Xenova or persons acting on behalf of either of them are expressly qualified in their entirety by the cautionary statements above. The forward-looking statements included herein are made only as of the date of this announcement.

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