Renovo drops on Shire's prudent stance

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Those harbouring concerns about Shire’s commitment to its partnership with Renovo, over the experimental scar reduction drug Juvista, were handed more reasons to worry today. News that the speciality pharma group wants to see phase III results from a European trial of Juvista before starting its own studies in the US sent shares in the small British drug developer down 19%, to record lows.

Considering the mixed data that Juvista has generated so far, the move by Shire is not entirely surprisingly; even Renovo’s chief executive described it as “prudent”. However, because trials will not be conducted both sides of the Atlantic in tandem, it pushes the potential launch date of the drug back by at least two years, which never makes shareholders happy.

Shire licensed Juvista a little over a year ago, in all territories outside the EU, in a $825m deal. The promise of the product is apparent, a drug that can reduce scarring has huge potential and wide application, and there is certainly an unmet need.

Since then, however, clinical set backs have done little to reassure investors that the product will ever reach the market. (Renovo suffers pain of disappointing twice, March 4, 2008) The fact that the product sits oddly within Shire’s own portfolio, as it would probably fall into the paid-for cosmetic surgery market rather than a reimbursed medicine, has only exacerbated concerns about how committed the group is to the project.

Long wait

On a conference call today, Mark Ferguson, Renovo’s chief executive, stressed that Shire remains enthusiastic about the drug. The companies are working closely on putting together a suitable package of trials for regulators, he said, which considering the bigger company’s expertise, should be comforting.

However, the results that Shire is waiting for will not be due until mid-2010, meaning approval in the US is unlikely until at least 2014, two years later than hoped.

The decision to wait for more confirmation of efficacy could have been influenced by the results of a phase II trial in scar revision, also announced today. Although the primary endpoint was met overall, the study combined results from two types of surgical techniques, one of which failed to produce a statistically significant result.

Considering the previous mixed data, and the fact that the pathway to approval has yet to be clearly laid out by regulators in either Europe or the US, Shire’s reticence to start funding large US trials is not surprising.

Cash worth more than assets

Another disappointing outcome from the news for Renovo is that it will now need to raise more cash at some point in the future. The £84m ($154m) currently in the coffers will last for a couple of years, but is unlikely to last until Juvista generates milestone payments from Shire.

With the share price at rock bottom, the company will find it hard to tap the equity markets.

As EP Vantage highlighted yesterday, Renovo is rare in the sector in that its market value of £51m is significantly lower than its cash balance. (When cash is worth more than the assets; August 27, 2008)

Given that today's fall accentuated this fact, an argument could be made about how much lower the shares can go. In other circumstances the potential for a take-out by Shire might provide a boost, but this seems unlikely given the doubts about the product. Renovo and Juvista have a lot to prove, and catalysts for a significant rebound in the share price are hard to find.

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