EP Vantage Interview - Vernalis raises funds to rise from the ashes
Vernalis, once one of Britain’s biggest biotech hopes, pulled off a fundraising this week that could well mark the company’s return to the UK life science industry's collective consciousness. The sum was not huge, £22m ($32.4m), but notable considering the current climate, Vernalis’ somewhat dented reputation and the fact that the sum was equivalent to one and a half times the group’s market value.
The achievement is testament to the reputation of the new management team, who came on board in November last year. Ian Garland, chief executive, told EP Vantage that it proves for the right team and the right story, funds are available. “We have a good track record and a lot of doors were opened to listen to the story,” he says. “I don’t know if you can extrapolate to the whole sector, but the message is that there is money out there.”
The demise of several smaller UK-listed drug developers in the last couple of years, on the stock market at least, has certainly created an aura of pessimism. Vernalis, which once boasted a market cap of £250m, was seen as one of the brighter stars but was sunk in 2007 by the FDA’s surprise rejection of migraine drug, Frova, in a preventative setting.
That created a cascade of debt repayment problems, which were largely resolved last year by selling the royalty streams for Frova and a US business. In November, the arrival of Mr Garland and David Mackney as chief finance officer suggested that it would not be too long before bolder efforts to re-invigorate the company would emerge.
The two men have a track record of building businesses, often to the point where big pharma become unable to resist. They have arrived fresh from Acambis, were they spearheaded a turnaround at the vaccines maker only for Sanofi-Aventis to launch a buyout pitched at £280m, which only closed last September. Mr Garland was also chief financial officer of Arrow Therapeutics, which was snapped up by AstraZeneca in 2007 for $150m.
The chairman of Vernalis, Peter Fellner, is also a well known figure and has been involved in many British biotech success stories, including Celltech and Cambridge Antibody Technologies, which was also bought by AstraZeneca.
With those CVs, it was not surprising that fund managers made time for the team in their diaries. Invesco, which was already Vernalis’ biggest shareholder with a 25% stake, took 39% of the new shares on offer, a strong signal of support that no doubt helped allay other investors’ concerns. The placing, of 799m shares at 3p, will be followed by a 20 for 1 share consolidation.
In a sign of faith from the investment community, shares in Vernalis have climbed since the funding was announced; reaching 4.5p today, up from 3.3p previously.
No quick sale
Mr Garland denies that his intentions for Vernalis lie in a sale, pointing out that the offer for Acambis was completely unplanned and unsolicited.
“The goal here is not a quick turnaround and a sale to someone else. We want to realise the value that is in Vernalis. Although, I am open minded to what is the best way to deliver shareholder value,” he adds.
On top of previous cash, Mr Garland is now left with £32m. He reckons this will last until the first half of 2011, a very respectable runway that will certainly provide reassurance for shareholders reluctant to part with their own money at the moment.
Further funds could come from milestones payments on compounds being developed by partners, including V2006, which Biogen Idec is developing in Parkinson’s disease, and NVP-ALLY922, an oncology candidate partnered with Novartis. Vernalis also has a couple of other candidates available to partner.
In terms of internal research, the group’s lead compound becomes V3381, a dual-acting neuropathic pain drug which is ready to begin phase IIb trials. Data is anticipated at the end of 2010, which if positive would allow partnering talks to begin.
Whether a stronger Vernalis emerges in the long term remains to be seen, but the management team are certainly well qualified to grab the company by the scruff of its neck and shake out progress. Mr Garland's confidence and reputation is clearly enough for some investors; he does not even feel the need to change the name, to expunge past associations.
"Vernalis’ key short comings were no management or cash to take it forward, but it certainly had a pipeline. We’ve addressed the management need and now the cash need, so Vernalis is now a very new and different story," he says.