A new dawn may be emerging for UK-listed small-cap drug companies bringing ground-breaking new treatments to market.
The track record of smaller companies managing to get their drugs to phase three trials - in-depth studies which confirm whether the treatments work safely - has been patchy.
Analysts say companies have oftentimes fallen at earlier fences when drugs undergo initial efficacy and safety tests, or had to seek partners or suitors to fund further development.
But three AIM-listed companies in particular have made it largely alone to the phase three stage with treatments – and analysts say their drugs have a good chance of crossing the finish line.
One analyst who declined to be named said: “Yes, it’s pretty rare for a small biotech company to bring something through to the end game.”
Analysts say investors have been wary about funding small biotech firms following cautionary episodes such as the rise and fall of British Biotech (BB) in the 1990s.
BB once had a market capitalisation of £1.9bn as its stock jumped on hopes for a cancer drug called Marimastat.
But the treatment failed, management quit and the firm reversed into listed rival Vernalis in September 2003, eventually taking the latter’s name.
The unnamed analyst said most institutional investors had not made any money out of biotechs, but those who pick well could strike it rich.
“If you get a good one, it could be spectacular,” he said.
That sentiment is alive and well among followers of three companies that have made it through to phase three trials of their respective development drugs.
London-listed Finnish group Faron Pharmaceuticals Oy (LON:FARN) has started phase three trials of its Traumakine drug for acute respiratory distress syndrome (ARDS).
Motif Bio PLC (LON:MTFB) is in phase three tests of iclaprim, a treatment for skin infections.
And ImmuPharma PLC (LON:IMM) has launched phase three studies of its Lupuzor drug for life-threatening auto-immune disease lupus.
Many companies have joined forces with partners to take proven drugs to market.
Skyepharma has linked up with Mundipharma to develop and market asthma treatment Flutiform, which was available in 30 markets worldwide at the end of last year.
Samir Devani at RX Securities said a lot of companies partner their drugs at phase two, which can lead to royalty payments of up to about 12%-15%.
But companies that can take the drug to market while keeping all the proceeds for themselves can be a bigger attraction for investors.
“If you can take a drug to market for 100% of the economics, it's the holy grail," Devani said.
“Investors will want to see the data but if it works, they’ll make a lot of money.”
Analysts also say other factors can be important in determining whether a development drug succeeds or fails.
Faron has teamed up with a Japanese licensing partner which has obtained positive results from a phase two study of Traumakine in Japan.
But Devani said Faron is also benefiting from the fact that Traumakine is based on a drug that has already been approved for treating multiple sclerosis.
Faron has developed an intravenously-administered form of the drug for ARDS, a severe disease with a reported mortality rate of about 30%-45% for which there is no approved pharmacological treatment.
It is characterised by widespread capillary leakage and inflammation in the lungs, most often as a result of sepsis, pneumonia or significant trauma.
Faron's chief executive Dr Markku Jalkanen said: "Our Traumakine treatment is the only known intravenously administered human interferon-beta preparation.
"It is important that dosing is optimal for patients lacking peripheral circulation, as is the case with ARDS patients.
“We have carefully tested various ingredients to optimise interferon-beta use in these patients and have now completed all necessary tests for patent purposes.
“If our claims are approved, we could have a proprietary product for the next two decades.”
Motif Bio has announced the dosing of the first patient in two phase three clinical trials of its lead antibiotic candidate iclaprim for treating acute bacterial skin and skin structure infections.
The trials are targeting a reduction in lesion size of at least 20% by 48-72 hours after treatment.
Motif expects to complete them in the second half of next year, paving the way for the drug to be launched in 2018 if they are successful.
Northland Capital Partners said Motif had passed milestones including getting approval for the trials, raising £25mln to fund them, appointing a company to conduct them and obtained fast-track designation.
The broker’s Vadim Alexandre said: “We’re confident Motif will meet its goal of completing the trials by the end of 2017.”
Alexandre added that companies were responding to a pressing global need for new antibiotics and benefiting from regulatory changes and government incentives to encourage their development.
He said: “It’s good that we have the phase three assets on AIM because it shows it’s do-able.”