Vernalis became the latest takeover target in the biotechnology sector yesterday after it cut 60 per cent of its workforce, parted with its chief executive and put its American operations up for sale.

Vernalis also said that it had settled a $56 million (£28.8 million) loan from Endo Pharmaceuticals, its partner, and would dispose of Apokyn, its Parkinson's disease drug.

However, the refusal of the US Food and Drug Administration to license Frova, its painkiller, as a treatment for menstrual migraine meant that Vernalis missed out on about $40 million in payments from Endo, leaving its funding unclear.

Small, cash-hungry biotech companies have felt the squeeze of the credit crunch. Ardana, based in Scotland, said on Tuesday that it was seeking a sale or merger. Two weeks ago CeNeS Pharmaceuticals revealed that it had received a takeover approach. There have also been rumours that Oxford Biomedica will be bought by Sanofi-Aventis, its French partner.

Vernalis, based in Barkshire, said that Simon Sturge, the chief executive, would step down at the end of the month and that it would reduce staff from 210 to 90 to focus on research and development. The company settled the loan with Endo by making a cash payment of $7 million and agreeing to forgo future royalties on Frova unless American sales exceeded $85 million.

Peter Fellner, the executive chairman, said: “The loan was very much at the front, middle and back of the market's mind. That's gone and we will end up with a cash life that is better than many other companies. It's true that it makes the company very much more attractive, but we're really not setting out to be bought; we're setting the company up for a long life.”

Vernalis said that the restructuring would leave it with enough cash for two years. Its shares closed up 1.03p at 8.35p, valuing the business at £27.4 million. “The strategic restructuring will enable the company to focus upon its innovative discovery programmes and progress its development programmes to the point at which they can be partnered,” Vernalis said in a statement. “The headcount reductions ... will be larger in corporate and other areas than in research and development, where it is planned to retain a critical mass that will ensure that Vernalis' ongoing programmes are effectively pursued and remain fully competitive.”

Analysts said that the restructuring paved the way for Vernalis to be bought. Sam Fazeli, senior research analyst at Piper Jaffray, said: “Looking at Vernalis, you now see a company where the CEO has left and where they've got rid of the Sword of Damocles hanging over their head by restructuring and giving themselves a long cash life. The company is very cheap and people aren't blind to that.

“There are also quite a lot of companies going into this downturn with sizeable cash balances, like Vectura, Protherics, Antisoma, BTG, Biocompatibles.”

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts