Pharmagene stock dives 24% on drug setback

Pharmagene, which uses human tissue discarded in hospitals to help pharmaceutical companies discover new drugs, has suffered a setback in plans to turn itself into a pharmaceutical company in its own right.

It said yesterday that trials of its first product had shown it was ineffective as a treatment for cystic fibrosis.

Pharmagene shares tumbled 24 per cent to 31p, their lowest this year, because the company accompanied news of the product disappointment with a warning that sales in the its core business would miss forecasts.

An 80-patient study showed Pharmagene's drug was no better than a placebo in helping cystic fibrosis sufferers clear fluid from their lungs. The drug will instead now be developed for smoker's cough, but because this is an area where other drugs exist, it is unlikely to be rushed through regulatory approval. A launch is not likely before 2010.

Alastair Riddell, the chief executive, said: "We have not lost a product, just cystic fibrosis as a first indication for that product. Cystic fibrosis was the most expedient indication, but it would not have been the most lucrative."

A revenue shortfall in the drug discovery services division - which tests potential new drugs on human tissue that Pharmagene collects from hospitals - was blamed on cutbacks in early-stage research by big pharmaceuticals companies. An uptick in sales at the end of the year came to late to allow the group to hit forecasts, although overall losses will be no worse thanks to Pharmagene winning higher-margin work.