BioWorld International Correspondent

LONDON - Phytopharm plc was forced to pull a £23.9 (US$43.9 million) fund raising at the eleventh hour, when its partner Yamanouchi Pharmaceutical Co. Ltd. said it likely was to cancel the licensing agreement for Phytopharm's Alzheimer's disease treatment.

The timing could not have been worse. At 9:15 a.m. Friday, Phytopharm's shareholders met and gave approval for the placement. The shares were due to be admitted to the London Stock Exchange at 8 a.m. Feb. 28. But later on Friday, the company received the letter from Yamanouchi.

"The information we gave shareholders was accurate at the time of the [extraordinary general meeting], but would not have been right at the time of admission [of the shares], and so we had to pull the fund raising," said Richard Dixey, CEO.

"If the letter had arrived [Monday] the shares would have been admitted as planned. If we had heard two days earlier, we could have amended the prospectus and informed shareholders at the EGM," he said.

The company's shares (LSE:PYM) fell 37.5 pence Monday, or 19.4 percent, to close at 151.5 pence.

Yamanouchi's decision (which is not yet final) follows a portfolio review as the company prepares to merge with Fujisawa Pharmaceutical Co.

The consolation prize for Godmanchester, UK-based Phytopharm would be a milestone of £4 million. Yamanouchi agreed to make the payment following a review of the safety data of 60 patients treated with PYM50028, which is based on a plant extract used as a traditional tonic for the elderly in parts of Asia.

Phytopharm was raising the money to bolster the balance sheet as it negotiated further licensing agreements for PYM50028, which is in a Phase IIa UK study in 238 subjects. Dixey said Yamanouchi's decision would not make a material difference.

"Japan is only 15 percent of the world market, and the £4 million milestone is all the money we were due up to the completion of Phase IIa," he told BioWorld International.

At the end of August, Phytopharm had £5.4 million cash. It signed in December a deal with the consumer products company Unilever plc to use Phytopharm's appetite suppressant in slimming foods. Unilever agreed to make an initial payment of £6.5 million.

With £4 million to come from Yamanouchi and a current burn rate of £512,000 per month, Phytopharm is not about to run out of money. Dixey said: "The money was to expand operations; we will wait and see what happens now in terms of whether we [try to] do another fund raising."

However, he resents the amount of time wasted in organizing the cancelled placement.

"This was not some trivial process; it took far, far more effort than doing licensing deals," he said. "I feel more strongly than ever that there is something fundamentally wrong with the UK system [for making follow-on offerings] and its overemphasis on the protection of shareholders' rights."