Shares in Stanford Rook crashed by 390p to 150p, reducing the value of the company from pounds 104m to pounds 29m, after the company announced that it had been forced to abandon plans to market its one drug, SRL172, as a treatment for tuberculosis.
Trials in South Africa involving 347 patients found that the drug, which works by triggering the immune system, was no more effective in treating tuberculosis than existing therapies.
The results are a serious setback for the company and mean that SRL172 will not come to market until 2002 at the earliest. Stanford Rook had expected the drug to start earning revenues as early as next year as a treatment for tuberculosis, which causes three million deaths a year. Analysts had expected this form of treatment to generate as much as pounds 300m in sales.
The setback makes Stanford Rook the latest in a long line of biotechnology companies to shock the market. Founded in 1992, it obtained a listing on the Alternative Investment Market in July, 1995, since when the shares have shot up from just over pounds 1 to a high of 635p. In the week before the South African trial results were released the shares rose 19 per cent in the expectation that they would be positive.
The news comes just three weeks after another "biobabe", Bicompatibles International, stunned investors by disclosing that a marketing deal for its main product with Johnson & Johnson, had collapsed.
Eric Boyle, executive chairman of Stanford Rook put a brave face on the trial results saying that although it was disappointed, the treatment of TB would, in fact, have been the smallest market for the drug.
He said the company was now pressing ahead with the development of SRL172 as a treatment for melanoma or skin cancer, hay fever, asthma and aids. The cancer treatment market is estimated to be worth up to pounds 1bn.
Phase three trials - the final set of clinical tests before a drug goes on the market - of SRL172 as a cancer treatment are due to begin the first half of next year and will take two years to complete. Second- phase trials for its use as a treatment for hayfever and asthma are in preparation in Oxford and Southampton.
However, none of these treatments will be ready to go on to the market until the next century, always supposing they get through clinical trials.
The principal outside shareholder is Bank Von Ernst, a private Swiss bank owned by the German retail bank Bayerische Vereinsbank, which owns a 24.9 per cent stake. Yesterday it saw the value of its holding plummet from pounds 26m to pounds 7m. A spokesman said the shares were held on behalf of private clients but could not comment further.