Ark sinking after EU rejection

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It was always a high risk, high reward proposition but unfortunately for the company and its investors high risk has won the day with news that a European advisory committee has adopted a negative opinion on Ark Therapeutics’ novel gene therapy product, Cerepro, to treat an aggressive form of brain cancer.

Many had predicted that a negative verdict would send Ark’s shares into freefall to trade at around current cash levels (Event – Ark facing make or break decision, November 11, 2009); so far today the stock has declined 43% to a record low of 17p, only slightly higher than estimated cash per share of just 10p. Ark will appeal this decision, although the delay now means that preservation of its £20m ($32m) cash reserve is a priority for the UK biotech which has wasted no time in announcing a cost reduction programme.

Unconvincing endpoint

Unfortunately for Ark at this late stage in the development of Cerepro it seems the European regulator has a fundamental problem with the efficacy endpoint used in the main pivotal trial, time to re-intervention by surgeons, suggesting this to be too subjective and liable to be biased in favour of Cerepro.

In addition, experts on the Committee for Advanced Therapies which reviewed Cerepro were not convinced that the overall survival rates from using Cerepro were consistent enough to rule out that any apparent benefit could have been down to chance.

Alongside the unconvincing efficacy data, Cerepro was also associated with an increased risk of serious side effects such as partial paralysis and seizure. Hardly surprising therefore that the committee found that the benefits of Cerepro did not outweigh the risks and issued a negative opinion.

The detail and nature of the regulatory response will no doubt further irritate those analysts and commentators who had previously been frustrated by the company’s reluctance to fully disclose the clinical data for Cerepro.

Appeal hope

Ark has 15 days in which to launch an appeal against this decision and chief executive, Nigel Parker, has said the company will “file for re-assessment in a matter of days and expect the appeal process to take about four months.”

Mr Parker claims the company has the relevant data from the trials to address the regulators concerns including the issue of re-intervention. Some of this data was already provided to the authorities towards the end of the review process so the company may have to re-assess how they present this information if it failed to convince in the first instance.

Given the nature of the regulator’s concerns over Cerepro it would seem that Ark has its work cut out if it is to succeed in its appeal, particularly as the company is attempting to bring the first ever gene therapy product onto a western market.

Proponents of Cerepro however will argue that the regulatory process was always going to be long and arduous given its novelty and that it will take some time for decision makers to become comfortable and appreciative of this technology.

Cash preservation

The negative opinion on Cerepro now compounds the fact that Ark’s cash reserves are approaching red territory. With around £20m in the bank the company was going to need a fresh injection of cash at some point over the next 12 months and a positive verdict would have sparked dramatic share price gains making an equity issue a straightforward and lucrative proposition.

Instead Ark is faced with limited financing options, unless the appeal is successful, with their shares at record low levels. The challenge of appealing to the regulators could therefore be followed by another major challenge of asking existing shareholders for more money.

In the meantime Ark has taken the prudent step of initiating a cost reduction programme, although the extent and detail of the plan has yet to be revealed. These are precarious times for Ark but as the old saying goes, what they do next will really count.

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