Scotia shares plunge 60% on US refusal to approve key cancer drug

Scotia Holdings, the biotech company, more than halved in value yesterday after the group said its lead drug, Foscan, had failed to win US regulatory approval.

Scotia Holdings, the biotech company, more than halved in value yesterday after the group said its lead drug, Foscan, had failed to win US regulatory approval.

The shares collapsed by more than 60 per cent on news that Scotia had received written notification from the US Food and Drug Administration that its application to market the drug was "not approvable at this time". The FDA had been expected to give the all-clear to the product, which is designed to treat advanced cases of head and neck cancer.

Scotia shares ended down 75.5p at a record low of 47.5p. The news also hit the sector. AstraZeneca closed down 66p at 3,455p while SmithKline Beecham ended 15p lower at 891p and Glaxo Wellcome finished at 1,964p, down 42p. Nick Woolf, an analyst at ABN Amro, said: "This is a healthy dose of realism for the sector."

Robert Dow, Scotia's chief executive, said no reason had yet been given to the company for the FDA's decision to reject Foscan. But it is thought concerns could centre on the small number of people, 64, who took part in the drug's trials. Dr Dow added that the company would work with the authority to determine the objections and try to find a solution. He said: "It's a great disappointment for us ... Clearly the company is in a difficult position."

Scotia has spent more than 10 years and £47m on developing Foscan. Analysts had forecast sales of $150m (£100m) for the treatment. It had been hoped that Foscan could also be applied to help victims of prostrate and skin cancer, generating total estimated sales of $500m.

Scotia, which was counting on the Foscan approval to return it to profitability, has no more than six months' of operating cash left. Earlier this month, the group reported a half-year loss of £13.8m after research and development costs of £9.4m. The company's financial position is further complicated by its outstanding £50m of bonds, which it is obliged to convert into shares at 340p by March 2002.

Dr Dow said that, in the light of yesterday's announcement, he would now look to the best ways to deliver shareholder value. Asked whether the alternatives included selling the company, Dr Dow said: "Yes, that would be an option." Possible buyers could include Elan of the US or Germany's Merck AG. But analysts said it was unlikely that a deal could be done before Scotia has a final FDA answer on Foscan.

Eva Haas, an analyst at Old Mutual Securities, said: "This is not a good situation to be in." She described Foscan as "the jewel in the crown" of the company.

ABN's Nick Woolf said Foscan now faced a race against time to keep its head above water. He estimated that a best case scenario would see the group renegotiating approval for the drug in nine months. At worst, he said, the process could take as long as 18 months and still yield a negative outcome. Mr Woolf said the group was likely to try to renegotiate its debt. It could also sell its two remaining businesses - its reformulation unit and Olibra, an appetite suppressant - for about £10m.

Foscan has had a chequered history since the FDA awarded it "fast-track" status in 1999. Optimism that it would win a swift approval pushed Scotia shares up to a high of 230p in March. But they later fell back nearly 30 per cent after the British Medical Journal published a report, later retracted, claiming that some of those involved in Foscan patient trials had suffered burns to their skin. The shares had since been staging a recovery. But Mr Woolf said yesterday: "I think this stock has got a lot further to fall."