Shares in UK biotechnology group Vernalis slipped more than 5% yesterday despite the company reporting a narrower loss for 2008, a successful equity financing of £22 million, and a positive outlook for the coming year.

Vernalis posted a relatively mixed bag of results for the 2008, with a massive drop in organic revenues but lower general expenses and a narrower operating loss, after a turbulent couple of years which could well have seen the demise of the company.

Revenue from continuing operations came in at £54.8 million compared to £19.7 million in 2007, although the result was given a one-time boost of £44.6 million due to a loan settlement. Taking this out of the equation, pre-exceptional sales were £10.2 million - almost half of that posted in the prior year - and include £6.3 million from the supply of Frova (frovatriptan) to Menarini in Europe and £3.9 million in respect of collaboration income and deferred revenue.

Cost of sales leapt to £15.6 million from £5.8 million in the prior year, but, on the flip side, research and development expenses were down 25% at £16.1 million, and general and administration costs slid 24% to £4.7 million, as a direct result of the company’s restructure during 2008.

The surge in revenues and reduced costs from the restructure - brought on by the US rejection of a supplementary filing for the migraine drug Frova in 2007, and the loss of a related $40 million milestone payment - helped Vernalis slice its operating loss from continuing operations by 9.4% to £12.5 million.

On the pipeline side, the company has followed in the footsteps of many of its peers around the world by undertaking a portfolio review to identify its “key value drivers”. As a result, seven programmes were singled out, in which Vernalis will continue to invest in three: V3381 for neuropathic pain; V158866 for pain; and Chk1 in cancer.

Of the remainder, V2006 is being worked on by Biogen Idec for Parkinson’s disease, NVP-AUY922 and Hsp90 Oral, both for cancer, are being progressed by Novartis, and a partner is being sought for V85546 in inflammation.

Vernalis is also looking to partner and realise value from V1512 in Parkinson’s disease and V10153 for ischaemic stroke, but has decided not to sink any more cash into the V24343 programme for anti-obesity, it said.

Significant value
Commenting on the renovation of its pipeline, Ian Garland, Chief Executive Officer at the firm, claimed that Vernalis has “significant value in its unpartnered programmes” and that it is “committed to rebuilding shareholder value”, focusing investment on “the key value drivers for the company, partnering where most appropriate”.

The company is certainly working hard to leave behind the crises caused by the failure of Frova for menstrual migraine in the US. During the second half of 2008, it carried out a complete restructure of its UK research, development and corporate infrastructure, which saw its staff culled from 210 to 90. This was followed in the second half of the year by moves to reposition itself as a development stage company.

Now, according to Vernalis, the outlook for the group in 2009 is much brighter than it was a year ago. “We have a new management team, a strong cash position and a clear strategy to re-build shareholder value. The 2009 goals and priorities are clear and we are focused on executing the plan to achieve them,” it said.

And to help the company on its way £22.1 million has been raised through a fully underwritten placing and open offer of 799,112,129 ordinary shares at 3 pence each, proceeds from which will help to ensure “sufficient cash resources for the foreseeable future”, it said.