Poison pill

Tue, 02 Oct 2007 11:29:40 GMT

Cityblogger admits to feeling a little under par. The wet autumnal weather we are currently enjoying, if that’s the right word, often brings on a small niggling headache. But everything’s relative. For quite honestly Cityblogger’s minor health tribulations are nothing compared to the thumping migraine poor investors in biotech washout Vernalis will be suffering. The shares slid a vomit-inducing 51 per cent in Monday’s trading and are down another five per cent today to just 19p. It must be particularly hard to stomach given that back in January they were trading at 73p.

The problem? After dragging its heels over its review of Vernalis’ migraine drug Frovatriptan, which the company was developing to treat the painful headaches some women get as part of the menstrual cycle (known as menstrually-associated migraine - MAM), the US Food and Drug Administration (FDA) rejected the drug. The regular didn’t consider the trial data was compelling enough, and hinted the product might potentially induce heart side effects, despite no evidence of this in the trials. Chief executive Simon Sturge admitted he was “surprised and disappointed” by the outcome.

Vernalis was relying on good news to secure a milestone payment from US partner Endo. Now rumours are flying that Endo might return the rights to Frova, already approved for standard migraine but not exactly selling like hot cakes. And while it does have other products, Vernalis put all its eggs in one basket betting that Frova would win approval for MAM. City talk is now of a potential rights issue/cash call and job losses at the company.

Needless to say, analysts are disappointed, especially as Vernalis was held up as one of biotech’s shining lights. The company was formed from the ashes of British Biotech, which was previously accused of exaggerating how advanced its cancer drug was, and had won back the City's respect. “It’s very sad,” muses Robin Campbell, analyst at Jefferies. “This really puts Vernalis in the stew. Continually the [FDA’s] goal posts seem to be shifting, not just in efficacy but also in safety. But pain therapeutics is always a difficult area to get drugs approved in and menstrually-associated migraine was always going to be a tough sell.”

Certainly, the FDA seems hypersensitive to potential drug side effects right now, having been stung by the fallout from Merck’s pain drug Vioxx, previously withdrawn following patient heart attacks, and more recently concerns about Glaxo’s diabetes drug Avandia.

If anything, the Vernalis story shows how risky the biotech sector continues to be, and the dangers of being a one-product company. Time for Cityblogger to lie down in a darkened room with an ibuprofen. Although on second thoughts a herbal tea might be safer…!

The inside word from the City: Biotech

Poison pill