When a clinical-phase drug developer announces a set-back in getting a treatment to market there is only one way that investors are going to react.

Medicine re-developer Oxford Pharmascience (OXP:AIM) lost almost a third of its value after confessing that it has failed to secure a partnership agreement for its OXPzero Ibuprofen and Naproxen compounds. Shares crash 29.7% to 3.2p on the news.

Analysts at N+1 Singer wasted no time removing potential milestone payments from their forecasts. This turns an anticipated £27 million pre-tax profit in 2016 into a £4.3 million loss. The £32.5 million pre-tax profit once expected in 2017 has also been downgraded, this time to £4.5 million in the red.

Web - Oxford Pharmascience - 20 July 2016

Partnering with a larger player helps fund a drug candidate through the later stages of clinical trials. A regulator could demand that thousands of people are tested in the third and final stage of these tests.

Oxford Pharmascience specialises in improving existing treatments. This could mean removing a drug’s side effects or, in OXPzero’s case, making tablets easier to take by improving its taste.

The delay is the result of companies wanting further development work and a clearer regulatory pathway to market before committing to the technology.

Oxford Pharmascience had £22.1 million cash on 30 June, so it is unlikely that management will tap investors for development funds any time soon.

N+1 Singer analyst Sheena Berry believes that removing the milestone payments could be a temporary measure.

‘We continue to believe the group is capable of securing a licensing deal(s) in the future with any upfront now providing upside potential to our forecasts.

‘We look forward to an update on the group’s development plans in due course, at which point we will review our forecasts,’ she adds.

Issue Date: 20 Jul 2016