Shares in Phytopharm have collapsed on the news that the consumer goods major Unilever has terminated the firms’ agreement to develop Hoodia extract as a functional food targeting weight loss.

Hoodia extract is a novel appetite suppressant used by African bushmen and the two companies signed a deal in December 2004 to look at incorporating it in Unilever’s SlimFast meal replacement range. However, data from a recent clinical study using Hoodia extract “in a drink-based product have led Unilever to conclude that it is unsuitable to be taken forward”, Phytopharm noted.

The latter firm added that it is discussing the terms of the termination and chairman Alistair Taylor said “we have compiled a substantial dataset which will allow us to explore alternative product formats for the commercialisation of Hoodia”. It is now seeking other partners to “bring this exciting opportunity to market”.

Investors do not seem very excited and the news of Unilever’s pull-out pushed Phytopharma’s shares down over 30% to just six pence. The firm has a market capitalisation of around £5 million, though it has cash reserves of £7 million.

In an investor note, Robin Davison at Edison Investment Research noted that “if a new partner can be found, it may be possible to resurrect Hoodia”, but he feels the Godmanchester-based firm’s future lies in getting partners for its pharmaceuticals rather than functional foods.

Its lead compounds are Cogane for Parkinson’s and Alzheimer’s disease disease and Myogane for motor neurone disease. However, a costly 12-month pilot study of Cogane in Parkinson’s will not now go-ahead until a partner is found, Mr Davison noted.

Organising partnerships may take a while too, as the Unilever termination came just as chief executive Daryl Rees and chief financial officer Piers Morgan resigned. The loss of Unilever “is a very significant blow” and the departures of the two executives “was clearly related to this”, Mr Davison said.

The analyst is holding off a fresh valuation on Phytopharm until the firm reveals more details about the terms of the Unilver settlement when its full-year results are released on November 27.