Assistant Managing Editor

About a week after alluding to an upcoming financing event in its quarterly earnings call, Ariad Pharmaceuticals Inc. followed through with a $24.3 million registered direct financing to help strengthen its cash position as it continues to advance mTOR inhibitor deforolimus, as well as its earlier-stage cancer programs.

The Cambridge, Mass.-based company entered agreements for existing and new investors to purchase about 14.4 million units - each unit consisting of one common share and a warrant to buy 0.75 shares of common stock - priced at $1.69 per unit, the same as the company's Thursday closing share price.

Ariad's shares (NASDAQ:ARIA) closed at $1.48 Friday, down 21 cents, or 12.4 percent.

At the end of 2008, Ariad had cash, equivalents and marketable securities of $39.1 million, and said it expects to use about $24 million to $28 million in cash this year. Those figures reflect an anticipated $50 million in milestones from deforolimus partner Merck & Co. Inc., of which $12.5 million already was received for the start of a Phase II study in advanced prostate cancer, while the company expects another $10 million to come shortly upon the initiation of a Phase II study in non-small-cell lung cancer (NSCLC).

In its fourth-quarter and full-year earnings call earlier this month, Ed Fitzgerald, senior vice president and chief financial officer told investors that the firm would be seeking "sources of incremental funding." While he didn't offer specifics on the type of financing options the company was considering, he did say that Ariad expected to bring "one or more of these initiatives to fruition early this year."

In the company's SEC filing, it stated that net proceeds from the registered direct offering are expected to total about $22.8 million and will be used for operational activities, including R&D work, clinical trials, manufacturing, intellectual property protection, working capital and other general corporate purposes.

While no specific expenses were earmarked, Ariad is juggling a few pipeline projects, most notably its late-stage deforolimus program.

Under its 2007 collaboration with Whitehouse Station, N.J.-based Merck, Ariad is jointly funding the ongoing 650-patient Phase III SUCCEED (Sarcoma Multi-Center Clinical Evaluation of the Efficacy of Deforolimus) trial, which is testing the oral drug in metastatic sarcoma patients who have achieved a favorable response to chemotherapy.

The goal is to offer patients an alternative treatment after successful chemotherapy; current standard of care calls for patients to either continue toxic chemotherapeutic regimens with limited or no added benefit or to stop treatment and simply be monitored for disease progression.

The trial's primary endpoint is median progression-free survival, with overall survival as a secondary endpoint.

Ariad looks to complete enrollment this year, with a first interim analysis expected sometime in the first part of this year.

Deforolimus has both fast-track and orphan designation in the U.S. for soft-tissue and bone sarcomas, and has orphan status in the European Union.

In addition to prostate cancer and NSCLC, the companies also are investigating deforolimus in Phase II studies in endometrial and breast cancers, and the first data from those studies could be available later this year.

Ariad, which received a $75 million up-front payment from Merck, could earn total milestones of up to $452 million over the course of the deal.

As of Dec. 31, 2008, it had received milestones of more than $100 million from the deal.

Beyond deforolimus, the company is moving ahead with AP24534, a multitargeted kinase inhibitor that has started Phase I testing in chronic myelogenous leukemia, acute myeloid leukemia and other hematological malignancies, and plans to start preclinical testing this year with its third program, an anaplastic lymphoma kinase inhibitor, for oncology indications such as NSCLC and neuroblastoma.

Lazard Capital Markets LLC served as the sole placement agent for the financing, which is set to close on or about Feb. 25.

Following the offering, Ariad expects to have about 86.4 million shares outstanding.

In other financings news:

• Pharmacyclics Inc., of Sunnyvale, Calif., said it closed a private placement valued at about $1.4 million in an investment by the principals of Pacific Biopharma Group Ltd. (PBG). The transaction was structured as a placement at 93 cents per share. The company is developing four clinical-stage drugs in cancer, including motexafin gadolinium, which has completed two Phase III studies in patients with brain metastases from non-small-cell lung cancer and other cancers and is in Phase II studies in glioblastoma. Shares of Pharmacyclics (NASDAQ:PCYC) closed Friday at 57 cents, down 4 cents.