Thursday, August 06, 2009

Vernalis: Rising From the Dead?

Maybe that's over-egging things a bit. But shares in the down-trodden UK biotech, which hit the rocks when marketed frovatriptan (Frova) failed to get a specific US approval for menstrual-related migraine, are creeping back up. And today's oncology research agreement with GlaxoSmithKline will probably help.

The deal provides Vernalis with $3 million up front cash, the same again as an equity purchase, and further potential payments of "in excess of $200 million" (yeah, you know they get carried away with the 'if-all-goes-according-to-plan scenarios') and, maybe, double-digit royalties one day. For this, Vernalis will do drug discovery against an undisclosed target using its structure-based-drug design technologies. (The target is one that both Vernalis and GSK had been working on previously, according to CEO Ian Garland.) If and when an IND emerges, GSK will have 90 days to decide whether or not to exercise its option to license the compound (s) and take on development and commercialization.

Yes, you spotted it--another option-based deal from GSK, option-dealmakers extraordinaire.

"The deal is structured as a risk-sharing agreement," says the release. Amid today's flurry of option-based deals, where risk is often heavily skewed toward the biotech partner, our first reaction was "you bet": Vernalis takes all the early risk, with some pocket money, and GSK may--or may not--choose to take on later risk.

But this deal is in fact a little more biotech-friendly than that. According to Garland, GSK will pay further pre-IND milestones of "more than $6 million", and the Big Pharma is also committed to doing the IND-enabling studies too (whatever they think of it at that point).

All of which helps Vernalis in its aim to fund most, if not all of its research activities. "Research either gets cut, or it pays for itself," Garland summed up to the IN VIVO Blog earlier this year. He says that this deal, plus two earlier alliances with Servier (the latest from May 2009), provide Vernalis with a two-year runway, to about mid-2011. That's assuming, rather conservatively perhaps, that the biotech receives no further GSK milestones.

Garland's hardly going to take undue risks with shareholders money, though--not after what many of them have been through already. Vernalis had become one of the UK's flagships, having acquired (among several) that other fallen hero of the sector, British Biotech, back in 2003. Our back-of-the-envelope calculation suggests and Vernalis and its predecessors had raised at least half a billion dollars prior to the Frova-related crash.

"It's unfortunate that shareholders lost a lot of money," Garland said in an interview in the Spring. "But this isn't British Biotech anymore; I'm not trying to make marimastat work." (Marimastat was the over-hyped BB cancer drug that ultimately failed, bringing the company down with it.)

What Garland is trying to do is as much as possible with Vernalis' residual assets (US commercial operations and marketed drug Apokyn were sold to Ipsen in a 2008 fire-sale; US Frova sales were also given away as part of a restructuring to settle debts and dues), taking advantage of the fact that basically, the only way is up.

When Garland took over as CEO of the downtrodden group back in December 2008 (having previously run vaccines group Acambis, sold in 2008 to Sanofi Aventis for £276 million) "we had a zero value starting point," he said. But he also believed "the negative has been overdone," and that starting again from scratch, with a very low valuation (Vernalis' market cap fell to £10m at one point; it's now just below £48m), provided "an entry point for [investors] to get on the elevator on the ground floor," he said.

For new investors, (or those willing to buy in some more) the elevator's on its way up. Vernalis is a leaner business, with a narrower focus on a few mid-stage projects. These include a Phase IIb neuropathic pain candidate, a Phase I candidate in inflammation, and late-research/pre-clinical compounds in pain and cancer. Meanwhile Biogen Idec will pay Vernalis a milestone if its licensed Phase II Parkinson's compound progresses to Phase III, and Novartis might owe small milestones linked to two Phase I cancer projects.

There are signs of life at Vernalis, then, but this is the company that can least afford to over-promise. Among Garland's 2011 goals are "to get back on our feet and re-establish credibility."

image from flickr user thebigdurian used under a creative commons license.

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