BioWorld International Correspondent

LONDON - Vernalis plc is raising £30 million (US$47.1 million) in a placing to buy back the European rights to frovatriptan, the drug which took the company to the brink when it failed to get FDA approval in treating menstrual migraine in 2007.

The move will leave the company debt-free, reduce cash burn, extend the cash runway beyond 2012 and give Vernalis "a significant royalty rate on a product that is growing well," Ian Garland, CEO, told analysts as he explained the rationale for the move.

Following frovatriptan's failure to win FDA approval in the additional indication of treating menstrual migraine in October 2007, Vernalis was forced into a major restructuring. Then CEO Simon Sturge left the company, and U.S. rights to frovatriptan, a selective 5-HT receptor agonist approved for acute use in treating migraine, were off-loaded in the U.S. to marketing partner Endo Pharmaceuticals Inc., of Chadds Ford, Pa.

In Europe the rights went to the investment firm Paul Capital Healthcare, which gave Vernalis €18.4 million (US$25.1 million), accounted for as a loan that was paid down as Paul Capital received royalties from frovatriptan sales. Now Vernalis is paying €24 million to take back all the frovatriptan rights, canceling the debt to Paul Capital, and giving Vernalis 25.25 percent of net European sales of the drug, which stood at €32.4 million in 2009. In addition, Paul Capital has agreed to subscribe for 2.1 million Vernalis warrants.

"As a result, we become debt-free and have a growing and sustainable revenue stream," Garland said. He noted that sales of frovatriptan grew by 15 percent in 2009 and the European marketing partner Menarini has plans to launch the product in more markets. The Italian company also has put significant effort into differentiating frovatriptan, which is long-lasting, from generic triptan drugs.

The 39.4 million new shares Vernalis is placing are priced at 76 pence, a discount of 6.7 percent to the closing price the day before the fundraising was announced. One of the major institutional shareholders, Invesco Asset Management, has agreed to increase its holding and could end up with 46 percent of Vernalis. The rule, saysany party acquiring 30 percent of more of a company must make an offer for it, has been waived.

Garland said that after paying Paul Capital there will be £7.5 million left to add to the £26.4 million cash Vernalis had at the end of December 2009. "The vast majority will be used to develop programs from ongoing R&D activities or [which are] in-licensed," Garland said.

The move also ensures Vernalis, in the event of negative results in the Phase IIb trial of V3381, a treatment for neuropathic pain. The data is expected at the end of March. "This substantially de-risks things if the study is negative, and if it is positive the upside is tremendous," Garland said. If the data are positive Vernalis intends to partner the program.

Published  February 17, 2010