The shares closed down 25.5p at 52.5p after Peptide said its flagship decapeptide allergy vaccine had failed in late-stage clinical trials.
One analyst, who declined to be named, said: "The hit on the shares is not excessive. This was a major drug for the company and for it to fail in phase IIb trials is a real blow."
The drug was hoped to have a general applicability across a range of allergies from hayfever to asthma. It now appears the molecule upon which it was based is ineffective. The optimism surrounding the treatment was the reason for the foundation of Peptide in 1993.
Dr John Brown, chief executive, said the company still had other anti- allergy drugs in development through a collaborative research agreement with SmithKline Beecham.
"Whilst these trials have not produced the results that we anticipated, several promising alternatives are emerging from our research," he said.
"Peptide could be seeing sales in 2001."