Respiratory disease-focused drug developer Verona Pharma (VRP:AIM) saw its share price collapse after one of its drugs in development choked clinical trials. Shares in the company fell by more than 40% to 1.2p, swiping more than £8 million of its market value, the company having revealed that its VRP700 chronic severe cough treatment failed to make a difference over placebo in stage IIa tests. The drug was being aimed at patients of idiopathic pulmonary fibrosis, a fatal condition that attacks the lungs.

The severity of the share price crash demonstrates the inherent risks of investing in small drug development companies. Verona now must face up to the fact that years of effort and piles of cash invested getting VRP700  to the advanced stages of the clinical trials process have come to nought.

Web - Verona Pharma - 23 June 2014

The UK’s largest drug-maker GlaxoSmithKline (GSK) has pulled several treatments at the clinical trials stage but the £77.3 billion cap has other revenue streams to ease any such loss. Smaller companies are not so robust. Phytopharm lost a long battle for independence after failing to prove the efficacy of a Parkinson's Disease treatment. The company has since been merged into medical imaging specialist IXICO (IXI:AIM).

Investors have long-memories when it comes to drug development companies with a record for failure, and the damage can have an impact right across the sector. However, there remains a robust appetite for biotechs currently with structural growth trends such as people living longer lives and rising middle classes in many emerging markets.

Verona will now concentrate on its existing development pipeline, including an asthma treatment currently in Phase II clinical trials and an anti-inflammatory product in pre-trial development.

Issue Date: 23 Jun 2014