Market backs transformational Vernalis deal

Shares in Vernalis, a UK pharmaceuticals company, were marked up after the company said it has placed shares at a premium to fund a drug development programme in combination with privately held US firm Tris Pharma.

The company has placed 50m new shares, representing around 50% of the existing share capital of the company, at 20p per share, versus a mid-market closing price of 19.5p on the day before details of the placing were announced.

On top of that, the company plans to make a staggering 292.5m shares available - nearly three times as many shares as the company currently has in issue - via a placing and open offer, also at 20p per share.

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In total, the company is seeking to raise around £65.9m net of expenses, which is not bad for a company valued at just under £25m.

The proceeds from the share issues will be used to fund the development work on six new "slow-release" cold and flu drugs which it is working on with Tris Pharma, and the building of a sales force to market the new treatments across the US, Puerto Rico, Mexico and Canada.

The agreement will see New Jersey based Tris develop the drugs and receive payments from Vernalis as they make their way through the regulatory process.

It's thought the new remedies can be fast-tracked based on "bioequivalence" to already certified treatments. This means the products could be on the shelves in less than two years' time.

Ketan Mehta, the Chief Executive of Tris said the crucial selling point of the deal was that "adults prefer long lasting relief in the form of a liquid, rather than (pills)".

Any funds left over from the development of the slow release products will be used to fund development of other products under new licensing agreements and collaborations with a focus on opportunities in later stages of development.

The market clearly believes in the business case, shares in Vernalis were up 29.5% at 11:37am. Over the last 12 months, however, the stock has fallen 45%.

BS/JH