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VERNALIS- Cambridge  Business Magazine Nov/Dec 2013

I really thought this an excellent read from Jenny Chapman, Business Editor at the Cambridge News, on pharma company Vernalis.

Seldom do retail investors get to read much of the background, history and prospects, so I hope people may find it as interesting as I did.



Ian Garland is disappointed AstraZeneca didn’t choose Granta Park for its new Cambridge   HQ, but what he is doing there as chief executive of drug company Vernalis could well go a long way to making up for AZ’s decision to go elsewhere.

Not that Mr Garland himself spends very much time at the park – Vernalis HQ is based at Winnersh near Reading – but 60 of the company’s total of 90 staff work on the park, and what they are doing could lead to a new blockbuster cancer drug.

But the story is complex and it is best explained by first doing a resume of Mr Garland’s career. A 48-year-old accountant, who did not go to university and trained with a small provincial firm, he joined KPMG in London after qualifying and clients he looked after included what was then Zeneca, and Pfizer.

The wanderlust took him off to the US after seven years in London and a job with Pepsi in New York, but before long he was approached by Gary Watts of Medivir, who was looking for a CFO in the States.“Medivir was a speciality pharma business and this was exactly what I

wanted to do.” After 18 months he was asked to run the business in the US, and then it was sold to Celltech.

Divorce forced him back to the UK because his ex-wife did not want to remain in the US and he wanted to be on the same continent as his children. Back in the UK he worked for Amarin, Arrow – which was bought by AZ – and then Acambis (previously Peptide) in Cambridge.

Peter Fellner, who had been the boss at Celltech, was now chairing Acambis and approached him.

“The rise and fall of Acambis was largely based around a smallpox vaccine after 9/11,” he tells me. Remember how nervous everyone was there might be a biological attack, smallpox replacing bombs?

Acambis became the exclusive supplier to the US, a deal which made the company, but Ian was brought in at the subsequent low point, in 2007, as CEO. He did some deals, raised £40m on the stock market via a placing in 2008 when the markets were turning sour, and had set up the

company for the next phase of growth when Sanofi came along with an offer impossible to refuse, $500m, Ian had doubled the value in a matter of months.

“I stopped to think about what to do next and then I was approached again by Peter Fellner, who chairs Vernalis and wanted to see if it had potential for success.”Vernalis had arrived at Granta Park via an amalgamation of Ribo Targets, the original company based there, British Biotech, and Vanguard, which was also known as Vernalis.

Indicative of the high risk associated with this sector, none of what these three businesses were working on has come to anything, but the foundation was set for what is happening now, and this is largely because of Ian’s experience in America.

“The capital markets were not supportive of R&D companies at that time, not keen to take the high-risk bets on early-stage research, they didn’t want to know until it reached mid-stage human studies, and that takes seven years.

“So, the markets were not keen on Vernalis’ business plan, but I believed there was a great case for a UK speciality pharma company, one which would be able to become self-sustaining, in charge of its own destiny and not dependant on capital markets.”

What does he mean by “speciality”?

“This is taking programmes or drugs that are already proven, and finding other uses for them. Yes, Viagra is an example. And there was another drug that had the side effect of hair growth.

“It is also about taking a well-used drug andre -formulating it, for instance, so that it can be taken once or twice a day instead of every four hours; or making it so that it is not activated until it reaches the part of the body where it is needed, and so avoids side-effects.

“It’s as risky as it gets to work in new chemistry, so I wanted to move the company away from this and towards lower risk opportunities, but the challenge is to find those with sufficient commercial opportunity.”

He looked back at his time with Medivir in the US and two cough and cold medicines which had used delayed delivery techniques. The thing was, delayed delivery in medicine is very rare in liquid form, it is nearly always in pills.

The technique used in those two medicines had not been particularly robust, so, deeming that someone, somewhere, was working on improvements, Ian looked around and found Tris Pharma, which was doing just that. He decided to buy Tris and raised £66m to do so, with heavy backing from blue-chip investors, who were not going to sneeze at the chance to get a slice of the US

Cough and cold remedy market, worth $2bn a year.

Ian sees all this as an ideal opportunity to build a Vernalis business in the US.

“We also looked at what was left here in Cambridge, 60 people working on fragment and structure-based drug design – in other words, new drugs for new targets, very different from the relatively less risky scenario set out above.

“The dilemma was that the markets would not give us the money, so we needed to find an alternative way of funding, or exit the business.”

Thankfully, the decision was made to push on, and Mike Wood, who heads the Vernalis operations

on Granta Park, and his team, were set the task of winning new business to make it all add

up. “ We didn’t know whether it would work, but four years later it is cash-generative, £8.7m last


What they have done is to partner with other companies in the sector, in the main much

larger ones, to combine the discoveries made at Granta Park with the partner’s endeavours. This has

resulted in work forging ahead targeting five different cancers, Parkinson’s, and other targets which remain secret. They all sound promising and some are at advanced stages of development, but the one which grabs my attention is the partnership with Novartis which is targeting solid tumours and which Novartis has indicated could become a blockbuster drug covering lots of cancers.

Vernalis would earn substantial royalty payments if this happens, and meanwhile it’s all upside, no risk or further cost, Novartis is doing it all.

“We have come up with a business model that works,” Ian says, “and retains the business. At some time in the future market sentiment may change, meanwhile, we have a self-financing business.

Some of the old programmes have been shed; a stroke programme, another for Parkinson’s, and another for obesity, none of which stacked up on the business case front and turned out to be what Ian called “unpartnerable”.

But there is yet another promising avenue open for Vernalis, it’s pain programme. The scientists at Granta Park have found a completely new approach to pain relief. The body has its own natural pain relief and a method of “mopping up” these “relievers” after the event, but what if a way could be found to switch off the mopping up?

This is what Vernalis has achieved and development is at an advanced stage, with results

from a Phase II human clinical trial due next year.

“We own 100 per cent of this,” Ian says. “The goal is to partner after proof of concept, to de-risk, we like that model.” And still another opportunity, although shrouded in secrecy, suffice to say that it

involves a new target for a potential Parkinson’s treatment, which is the same as two rivals’. “We

would have to play catch-up on the Parkinson’s front,” Ian explains, “but by going for this other target, they will have to play catch up with us.”

What a game it is, this sector. Meanwhile, Vernalis is getting a nice multi million pound royalty stream from Frovatriptan, it’s treatment for migraine, although the patents run out in 2015, and the company made an overall profit for the first half of this year on currency exchange from the fundraising to buy Tris.

“We don’t expect to be properly profitable before 2017, but we will transition to a commercial company in 2015.”

What about five years’ time?

“We hope to have a substantial and profitable US business, programmes with partners approaching

royalties, and the ability to see how we will fill the pipeline.

“A self-sufficient business is how I see it. I would love the company to remain independent, we are not building something for sale.

“I believed there was a great case for a UK speciality pharma company, one which would be able

to become self-sustaining, in charge of its own destiny and not dependant on capital markets”

Cambridge Business November/December 2013

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