Assistant

London-based Vernalis plc, still reeling from the unexpected rejection of its Frova (frovatriptan) for menstrual migraine in the fall, is drastically reducing its work force by 120 people and trimming operations to focus its limited resources on ongoing research and development.

That move comes as no surprise given the firm's need for cash - as of Dec. 31 it had about £20.5 million (US$40.3 million) - and the recent settlement of a loan agreement with Frova partner Endo Pharmaceuticals Holdings Inc. will cost Vernalis about $7 million in cash and a forfeit of future royalties until U.S. net sales of Frova in acute migraine patients exceed $85 million. For the first six months of 2007, Frova sales totaled about $38.6 million, with about $11 million in royalties going to Vernalis.

In the wake of those developments - and amid speculation that it's positioning itself as a potential acquisition target - the company opted to streamline operations, cutting its overall headcount from 210 to 90 people, closing its Canadian operations and consolidating all of its activities in the UK, with most of the work concentrated at its Cambridge facility and a small development staff continuing work in Winnersh.

Following the restructuring, expected to be completed in the second quarter, Vernalis' annual cash burn is expected to fall under £10 million.

In connection with the restructuring, CEO Simon Sturge said he is stepping down, by mutual agreement with the board, at the end of this month. The executive team then will report to Executive Chairman Peter Fellner.

The majority of the staff cuts will come from corporate and other areas outside of R&D, where Vernalis expects to focus most of its resources in the coming days. About 75 of the remaining 90 employees will be in R&D, and are expected to devote continuing efforts to a portfolio comprising six candidates, including four internal programs and two partnered drugs.

On its own, Vernalis is developing V1512 in Parkinson's disease. That product, which combines Levodopa methylester and Carbidopa, is finishing up a pharmacokinetic/pharmacodynamic study prior to starting a Phase III program.

The company also has V10153, which is in a Phase IIa study in ischemic stroke patients that is expected to yield results at the end of this year, and V3384, which successfully completed a Phase IIa trial in neuropathic pain. As its fourth internal candidate, Vernalis has V24343, which demonstrated an ability to produce significant weight loss in overweight and mildly obese volunteers in a Phase I study.

Vernalis is working with Cambridge, Mass.-based Biogen Idec Inc. to develop V2006, an A2A antagonist for Parkinson's disease, which is in Phase II, and is collaborating with Novartis SA, of Basel, Switzerland, to identify Hsp90 inhibitors aimed at treating various cancers. To date, that partnership has produced lead compound AUY922, which is in Phase I.

The company said that those ongoing collaborations, along with a three-year oncology drug discovery deal with French firm Servier, will not be affected by the restructuring moves.

After reporting news of the strategic restructuring, Vernalis' shares saw a nice boost from investors late in the week. The stock (LSE:VER) climbed 22 percent Friday to close at 11.25 pence, up 2.06 pence.

That's still a long way from the 40 pence Vernalis shares were trading at prior to the FDA's non-approvable letter for Frova, a selective 5-HT receptor agonist, in late September. Despite acknowledging that both pivotal efficacy trials conducted by Vernalis and partner Endo met their primary endpoints of significantly improving the number of headache-free perimenstrual periods, the agency raised doubts as to whether those data were "clinically meaningful" and mentioned concerns of possible serious vascular adverse events. That rejection more than halved Vernalis' shares that day, only nicking shares of larger Chadds Ford, Pa.-based Endo. (See BioWorld Today, Oct. 2, 2007.)

The companies currently are preparing their responses to the FDA's action letter.

The non-approvable letter caused Vernalis to miss out of a $40 million milestone payment from Endo, of which it had planned to use $20 million to pay down the Endo loan. Prior to the companies' recent settlement agreement, the outstanding balance of that loan, originally due in August 2009, had been $56 million.

In December, Vernalis had to apply to list 14.7 million shares in order to raise the $5.8 million needed to pay the milestone owed to former holders of Cita NeuroPharmaceuticals Inc., which Vernalis acquired in 2005. That milestone covered the successful completion of the Phase II trial of V3381.