Vernalis drops into red after investment in cough treatment

Revenue was up 7% to £6.1m in the six months to 31 December, but operating costs before exceptional items almost doubled to £19m due to the ramp-up in Tuzistra sales, marketing and other US commercial infrastructure costs since its regualtory approval last April and launch in September.

Through to 29 February 2016, there have been 4,571 Tuzistra XR prescriptions, with analysts differing on whether this was disappointing or encouraging.

As a result of the increased expenses, a £10.2m pre-exceptional loss was reported for the period, versus the £1.7m profit a year ago.

Vernalis, which had £54m cash and no debt at the period end, hopes for a strong start from Tuzistra suffered in a late-starting and exceptionally mild flu season in the US, with total prescriptions down roughly 15% versus the same period last year and total codeine and hydrocodone cough cold prescriptions down 25-40%.

But since the period end, the company said it was seeing more encouraging trends.

"It is too early in the launch to draw any conclusions from prescription volumes through to the end of February but we have seen steady growth in Tuzistra XR prescriptions week-on-week which reflects the growing awareness of the product with prescribers and the growing effectiveness of the field sales force."

Two more cough cold products in development under a collaboration with Tris Pharma are expected to apply for new drug applications (NDAs) this calendar year.

House broker Shore Capital said initial Tuzistra sales were "lower than we would have hoped" and that "pharmacy stocking was slower than anticipated - by both management and us".

ShoreCap forecasts the spending associated with the Tuzistra launch and building out of the US sales infrastructure, will see a further step-up in 2018/19 to support new product launches, but that current cash will be sufficient to take Vernalis through to profitability based on Tuzistra sales of £19m and £40m in the next two full years.

Analyst Julie Simmonds at Panmure Gordon however said the sales were "ahead of our expectations, though contain significant stocking". She expecting costs to be maintained at this run rate for the full year, Simmonds agreed that current cash was enough to carry it to profitability.