Phytopharm Cogane Phase II Results: Key Test Failed

Phytopharm’s (PYM.L) binary event has not gone well with the failure of Cogane to meet the primary or any secondary endpoints in its Confident-PD study in early-stage Parkinson’s disease. Cogane’s future now looks bleak – we do not view potential development for amyotrophic lateral sclerosis (ALS) as viable – and we are not surprised the stock is trading close to Phytopharm’s £5.5m cash balance. The company is conducting a strategic review and we believe the best outcome may be a reverse merger by a private company seeking to utilise Phytopharm’s cash, LSE listing and £55m in accumulated tax losses.

No beneficial effect
Cogane failed to show any statistically significant effects, or trends towards improvement, across any primary (change in UPDRS II/III scores of motor symptoms and activities of daily living) or secondary (cognition, quality of life, non-motor symptoms) endpoints. The company has stated that the study of >400 patients from Europe and North America was well conducted and produced robust data – the only positive outcome from the trial appears to be the unambiguous result.

ALS opportunity unlikely
Cogane had demonstrated encouraging data across four pre-clinical models of ALS, including SOD1 mice, and ALS was regarded as a potential fast-track, orphan drug, indication for additional development. However, the failure of Cogane to demonstrate a neuro-protective/regenerative effect in its most comprehensive clinical study, does not bode well for attracting further investment in ALS – some grant money had been secured but significant additional funds would be required to conduct the Phase II part of a potential Phase II/III pivotal study.

Strategic review underway
A review of Phytopharm’s strategic options was inevitable given the negative outcome of such a binary event. Given a lack of viable alternative pipeline options, the company’s key assets now appear to be its cash reserve (£5.5m at 31 January 2013), a full listing on the London Stock Exchange and £55m in accumulated tax losses, which could be utilised by a company within the healthcare field.

Valuation: Reduced to £5.5m cash
We have removed the rNPV for Cogane of £48m from our valuation model and therefore value Phytopharm at no more than its cash reserve of £5.5m. The prospect of a reverse-merger may offer some potential upside, depending on the terms of the deal and the company concerned.

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