Phytopharm forced to halt share placing

A Friday evening fax from a Japanese drugs company has torpedoed a £23m fund-raising by Phytopharm, the plants biotech specialist, wiping 20% off its stock market valuation.
The company was forced to abandon a share placing after Yamanouchi Pharmaceutical, Phytopharm's Japanese partner for its Cogane drug to treat Alzheimer's disease, sent a fax saying it was likely to terminate their licensing agreement.
The fax arrived moments after the share placing had been approved by Phytopharm shareholders.
According to the chief executive, Dr Richard Dixey, the warning over the agreement put the directors in breach of their warranties - that the information contained in the placing prospectus was accurate in all material respects.
"The extraordinary general meeting had approved the placing so we could not modify the prospectus so we had no choice but to withdraw the offer," Dr Dixey said.
He said Phytopharm was not threatened by the abandonment of the fund raising. "The proceeds were always intended to expand our portfolio in 2006. We may have to trim our sails but we have a low overhead base which makes it easier for us to fund the business."
Nonetheless, the stock market punished the firm. Phytopharm shares lost 36p to close at 151p as investors worried that the company's cash flow would come under pressure.
Dr Dixey said it was an overreaction. "We are not in desperate trouble, we do not need the cash immediately and there is nothing wrong with the product."
He said although Yamanouchi had indicated it was likely to terminate the licensing agreement it had agreed to make a £4m milestone payment under the existing contract because Cogane had met safety standards.
That cash is expected shortly. A further £6.5m is promised this year by Unilever as part of its deal with Phytopharm to explore the commercial use of a South African cactus in helping with weight loss.
Dr Dixey said the firm was not going to rush to reinstate the fundraising.

Ian Griffiths