Red faces at Novartis after failure of superbug treatment

NeuTec Pharma, the UK biotech company acquired nine months ago by Swiss giant Novartis for £305m, has seen its main drug rejected by European regulators.

The failure of the treatment will raise fears that a new $890m (£445m) licensing deal agreed last week by the Swiss pharmaceuticals giant for a risky cancer drug could meet the same fate.

"Hopefully, their due diligence will be better than it was last time around," said an analyst.

The drug's failure serves as a warning for "big pharma" companies increasingly dependent on small biotechs to fill their product pipelines. Novartis said last week that it would pay the UK biotech group Antisoma $75m up front plus milestone payments for rights to develop and market its lead drug, an unproven cancer treatment still years from commercialisation.

The deal comes just weeks after the rejection by regulators of Mycograb, a hospital superbug treatment that was the main asset of NeuTec.

When Novartis bought the 20-employee company last June, it made instant millionaires of NeuTec's founders, husband and wife duo James Burnie and Ruth Matthews. "NeuTec sold out with extraordinarily good timing," said a banker. "This has got to be very embarrassing for the guys [at Novartis] who licensed it."

The decision by the CHMP, the committee that approves drugs on behalf of the European Medicines Agency, confirmed its initial November finding.

A Novartis spokesman said the application for European approval was filed originally by NeuTec, not Novartis, and said that the biotech group's limited resources were to blame.

"When we bought NeuTec, we saw the typical shortcuts that are taken by biotech companies. We knew that the chance for approval was below 50 per cent," he said. "We factored this in.

"The rejection was due primarily to manufacturing issues. We will go back and do more clinical trials, but do them in a way that major pharma can do it rather than a 20-person company."