Vernalis suffers another pipeline blow

Vernalis’ new management team has made much progress since coming on board in late 2008, in terms of putting the company on a stronger financial footing and re-focusing investors’ attention on future potential, away from the failures of the past (Vernalis restructuring could lead to sale, February 20, 2008).

Unfortunately, the same cannot be said for the R&D pipeline, which has suffered yet another blow. The company announced today that its most promising project, V2006, a phase II Parkinson’s disease compound being jointly developed with Biogen Idec, will be abandoned in favour of a back-up pre-clinical candidate. With plenty of cash in the bank and a clearly stated desire to strike licensing deals and acquisitions, Vernalis needs to start spending wisely to rebuild confidence.

Cash value

Vernalis shares fell 12% today, to 32 pence, their lowest value since a significant financial restructuring and fundraising was undertaken in 2009, designed to put the company on the road to recovery (EP Vantage Interview - Vernalis raises funds to rise from the ashes, April 30, 2009).

However, with a market cap of £32m, investors are attributing little value to Vernalis beyond what it has in the bank – the company ended 2009 with £38m.

A series of pipeline failures is no doubt largely to blame; first came the failure of a phase IIb trial of V3381 in diabetic neuropathic pain, in March. This is a tricky indication to show benefit and the finger was pointed at the usual suspect, an unexpectedly large placebo effect.

The company returned rights to Chiesi for V1512, another Parkinson’s candidate, earlier this year after failing to find a partner; now the asset with most value attached, V2006, has flunked.

Pre-clinical findings

Pre-clinical findings derailed the project and a next generation compound will be progressed instead, which should move into the clinic early next year. The drugs fall under Vernalis and Biogen’s A2A receptor agonist programme, an area in which several companies are working in Parkinson’s, but with limited late-stage success so far (Therapeutic focus - A2A antagonists lining up to enter final stage Parkinson's trials, April 22, 2010).

Another mild disappointment came at the cancer conference Asco in June, when significant ocular toxicities were revealed in phase I trials of the Hsp90 inhibitor AUY922, presented by partner Novartis. Although there are huge hopes for this class of drug, side effects have derailed many compounds and the emergence of a new toxicity, which was also seen in another candidate developed by Astex Therapeutics, was viewed as disappointing.

Novartis has started phase II trials for AUY922, so there remains hope for this project, but overall these set-backs leave what is starting to look like a thin and very early stage pipeline. In terms of unpartnered assets, phase II results from V3381 in chronic cough are awaited, and two other candidates, in pain and cancer, are progressing through pre-clinical studies. On top of this, partners are being sought for a stroke compound and inflammation candidate, and the company has collaborations with Servier and GlaxoSmithKline in place.

Ghosts of the past

It was always going to be a tough call to shake off the ghosts of latter-day Vernalis, which narrowly escaped bankruptcy and represented a big disappointment for the UK life science sector.

Investor support for the turnaround story has largely been attributed to the strength of the new management team, lead by Ian Garland, who was involved with two British success stories, Acambis and Arrow Therapeutics.

However, having twice been tapped for cash now, and bearing in mind the collapse in the company's share price since, investors are no doubt keen to hear what the company has planned next for their money.

Spending £30m buying back the European royalty stream for migraine pill frovatriptan, sold by Menarini, was considered a good strategy. But with both of its lead candidates, V2006 and V3381, seemingly off the table, the next chapter of the story needs to emerge.

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