UPDATE 2-Toxicology sinks Vernalis, Biogen Parkinson's drug

* Development of Phase II drug vipadenant discontinued

* Drug dropped after review of preclinical toxicology data

* Plan to progress alternative compound into Phase I in 2011 * Vernalis shares fall 12 percent

(Adds shares, analyst comment)

By Ben Hirschler

LONDON, July 16 (Reuters) - Vernalis VER.L has stopped development of a drug for Parkinson's disease that represented one of its main pipeline hopes, due to worries over adverse side effects, sending its shares 12 percent lower on Friday.

The British biotech group said it and its partner Biogen Idec BIIB.O had decided to discontinue work on vipadenant, also known as V2006/BIIB014, following a review of preclinical toxicology studies.

The news is the second pipeline setback for Vernalis in months, following the failure of another experimental medicine known as V3381 for diabetes-related neuropathic pain in March. [ID:nLDE62N0FG]

The decision on vipadenant is a significant blow, since the drug had produced positive results in mid-stage Phase II clinical studies and investors had been hoping Biogen would decide to take it into final Phase III trials in 2011.

Instead, Vernalis and Biogen will progress a next-generation compound into Phase I clinical studies in early 2011, pushing back the Parkinson’s programme by at least two to three years, according Piper Jaffray analyst Sam Fazeli.

Shares in Vernalis tumbled 12 percent to 35.5 pence by 1043 GMT, after hitting a new all-time low of 30p.

Biogen Idec shares listed in Frankfurt BIIB.F slipped 1.6 percent.

Vipadenant and the new compound moving into Phase I in 2011 belong to a class of drugs known as adenosine A2A receptor antagonists. Experts hope they may be able to help restore motor function in Parkinson’s patients without side effects such as nausea and uncontrolled movement seen with current treatments.

Biogen signed a licensing deal giving it rights to vipadenant and the follow-up compound back in 2004.

Vernalis has one marketed product -- frovatriptan, for migraines. It was previously called British Biotech and was once the flagship of Britain’s biotechnology industry, until its key drug marimastat failed clinical trials in the 1990s. (Editing by Sharon Lindores and Michael Shields)