Renovo lost half its value on the stock market yesterday after announcing the failure of the latest trial of Juvista, its scar prevention drug, which had been touted as a breakthrough product with a potential $12 billion (£6 billion) market.

The group started the day as Britain's biggest biotech company, but by close of play its shares had plunged 68p to only 66p.

The group has carried out nine trials on Juvista and yesterday's announcement marked the second failure for the drug. Last December Mark Ferguson, the group's founder and chief executive, announced that a trial looking at scars during mole removal had been unsuccessful, blaming the results on badly designed trials.

Yesterday, the company said that the drug had failed trials to prevent scarring in breast augmentation surgery. The company plans to run further tests for scarring in breast augmentation using a double strength dose of Juvista.

The drug has worked as an agent to reduce scarring when tested on other parts of the body. Seven other Phase-II trials of Juvista, a drug originally developed from studies of wound- healing in alligator embryos, have been successful.

Professor Ferguson said: “Although it is disappointing that the breast augmentation trial did not meet its primary end-point, one of the objectives of our Phase-II programme was to investigate the most effective dosing strategy for Juvista. Cumulatively, the trials reported to date indicate that twice-dosing yields greater efficacy than once-dosing. This gives us confidence that the large scar reduction market remains accessible with Juvista and our first Phase-III trial will start in the second half of 2008.”

Renovo hoped to tap the lucrative cosmetic surgery market and analysts still believe that Juvista could be one of the few products in the European biotech pipeline with blockbuster potential.

Analysts at Nomura Code, the investment bank that focuses on life sciences, “conservatively” estimate the market for an antiscarring drug at $12 billion in skin application alone. Initial research suggests that pricing at approximately the same level as Botox - about £100 a dose - is achievable. With 42 million Americans undergoing surgery or treatment for accident and emergency every year, there is a large untapped market for such a product.

Despite plunging share prices, analysts placed “buy” notes on the company. Biotech stocks are particularly volatile to extreme stock market change as they are not judged in the same way as other sectors as they tend to have no profit and instead sell their shares on the back of a future dream.

Ibraheem Mahmood, biotech analyst at Investec, said: “Biotech rides on a rollercoaster of perception. When people look at a potential $4 billion market as with Renovo they can get overexcited and the stock surges. It can take just one piece of negative data for it to plunge again. There is no neat metric to tie share prices down to.

“I believe Renovo has grown up and shown a proper raft of Phase-II trials and they should be lauded for it. This is a new therapeutic area and Renovo is trying to understand the dynamics of the product. We would expect it to find some of that exploratory work unsuccessful.”

Goldman Sachs added Renovo to its “conviction buy” list and reiterated its 18-month price target of 389p, predicting a return potential of 190percent. Panmure Gordon reiterated its “buy” note, with a target of 120p. JPMorgan gave it an “overweight” rating and a target of 134p. Last June, Shire, Britain's third-largest pharmaceutical company, agreed to pay up to $825 million for exclusive development and commercialisation rights to Juvista.

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