Phytopharm's £24M fund raising has collapsed after a Japanese partner said it may pull out of an agreement to develop the company's most advanced drug.
Yamanouchi, which has rights to Phytopharm's potential treatment for Alzheimer's, said it is weeding out its portfolio of drug projects after a merger.
The UK biotech, which tries to develop drugs from plants, was notified of Yamanouchi's intentions shortly after a shareholder meeting which approved the placing and open offer at 180p a share - at "10.28am, just as the directors were driving out of the car park", according to Richard Dixey, the chief executive.
The stock slumped 20 per cent to 161.5p yesterday.
The placing had been intended to allow Phytopharm to negotiate further licensing deals for the Alzheimer's drug - called Cogane and developed from plants given to elderly people in the Far East - without potential partners being able to screw the company down on price. Without the funds, Phytopharm will have cash to last only an estimated 12 months and will no longer be negotiating from a position of financial strength.
Mr Dixey said "the wolf is not at the door" but the company is expected to reverse plans for speeding up the development of a motor neurone drug. He added: "It is about the only thing that can destroy a placing, a material event in the six hours between an extraordinary general meeting and the offering of the shares."
An aggrieved Mr Dixey said the decision to pull the fund raising had to be made on a "technicality" since the prospectus on which the shares were sold reflected Phytopharm's confidence that the Yamanouchi deal would endure. He said: "This is a reflection of labyrinthine complexity of raising money in the UK, and of having to meet these incredible set of rules. Effectively, you must have a business that is pickled in aspic for 28 days, since you need a prospectus that is accurate in every last detail for that length of time."
Pfizer canned development work on a potential obesity drug which Phytopharm had developed from a desert cactus. The technology has since been licensed by Unilever for potential use in diet foods.