Merger talks between an Oxford company and its German rival have collapsed.

In a brief statement to the London Stock Exchange, British Biotech, of Garsington Road, Cowley, announced it had terminated the talks.

But in a separate release, Munich-based MorphoSys claimed to have called a halt to the negotiations.

A spokesman for British Biotech said a deal was still on the agenda, but added that shareholder value had been a concern.

The City had hoped a deal could revitalise the fortunes of British Biotech, and encourage consolidation across the biotech industry.

British Biotech has been hit by the failure of cancer drug marimastat and pancreatitis treatment zacutex -- both at one point hailed as potential blockbusters.

The firm has seen its workforce shrink from nearly 400 in 1997 to 87 today, and its shares have plummeted from £1.45 two years ago to 2.65p.

The company is valued at £20m, less than half the value of its cash balances.

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

These include an antibiotic for pneumonia, and drugs for lung cancer and multiple sclerosis.

British Biotech's share price crashed when its clinical director said it had misled investors about the prospects for its potential drugs.

British Biotech made a £16.9m loss for the year to April 30. Its big advantage is that it has cash and short-term investments of £50.4m. Morphosys, with a bigger workforce, has only £28.2m in hand.

Biotech firms need to raise funds from investors, but the UK sector has lost half its value since the start of the year, compared with an 18 per cent drop in the FTSE-All Share index.