Biotech group Renovo is axing 100 jobs and considering the sale of some of its assets following the failure of its anti-scarring product Juvista.
Last month the company said phase 3 trials had produced disappointing results, and after further analysis, it has concluded Juvista provides no significant benefits to patients. It said:
The findings are surprising in view of the results of Phase 1 and 2 trials of Juvista, which as is typical, were conducted in more restricted, controlled populations.
Renovo's partner Shire has terminated its licensing agreement, and so the rights to Juvista in the US, Canada and Mexico have reverted to Renovo.
No further development of Juvista will take place, and to cut costs it will make the headcount reduction, including cutting the size of the board. It is also halting recruitment of patients for a trial of its Adaprev product, designed to aid tendon recovery in surgery.
The company has £44m in cash, but said:
The board is actively exploring all options to maximise shareholder value of the cash and assets including the possible sale of the Juvista, Juvidex, Prevascar, Adaprev and preclinical programmes.
We applaud management's decision to conduct a strategic review so promptly. This should help preserve the company's cash reserves and maximise share holder value.
Essentially, looking at the share price, the thesis has moved to one of bean counting. The key question seems to be one of estimating the company's wind-up costs. In our note of 11 February 2011, we had assumed a redundancy cost of around £25,000 per head on average. We had assumed a further £2.0m for lease liabilities and £0.5m for finishing off ongoing clinical trials. Although the company has been advised not to disclose any detail on these matters, we
believe an assumption of £5m-£7m liquidation costs should suffice.
We assume that the company retains some residual technology value. One can argue that residual value is in the region of £20-35m.
With a post-liquidation costs cash per share of 20p and minimum residual technology value of at least 10p per share, we have a price target to 30p. As such we reiterate our buy recommendation although we do acknowledge the
shares have probably become non-investment grade for many institutions.
