Staff Writer

EPIX Pharmaceuticals Inc. has entered into a $28 million deal and an ambitious $100 million debt restructuring, warning that if it does not succeed it may have to file for bankruptcy.

The Lexington, Mass.-based company is seeking to restructure $100 million in senior convertible notes due in 2011, and bankruptcy is one of the scenarios it could be facing if it does not renegotiate the terms of that debt.

But the company has been working with its bond holders to exchange those bonds for cash and stock. And so far, it has negotiated $83 million worth of bonds, Kim Drapkin, chief financial officer at EPIX, told BioWorld Today.

EPIX needs to negotiate $93 million worth of bonds to satisfy its obligation, and is $10 million shy of that goal.

At the same time, the company improved its cash position by agreeing to sell U.S., Canadian and Australian rights to imaging agent MS-325, formerly marketed as Vasovist, for $28 million, to Lantheus Medical Imaging Inc. A portion of those funds will be used to pursue the exchange offer of all of the company's outstanding 3 percent senior convertible notes.

From that the company will pay $10.5 million in obligations to former partner Bayer Schering Pharma AG, which marketed Vasovist.

The debt restructuring is "a necessary step to improve our financial situation," Drapkin said, adding that the company could be in an even better position in a month with the exchange offer of its outstanding notes. That offer will expire May 4, unless extended by EPIX with the consent of holders of 75 percent in the outstanding principal of the notes.

Maxim Group analyst Yale Jen said that given the $83 million that EPIX already has negotiated with bond holders, the company seems to be at a "much more mitigated risk."

Even if the company gets less than the remaining $10 million that it needs to meet the required minimum of $93 million worth of bonds, that debt would not come due until 2011. So EPIX would have "plenty of time" to resolve the debt, Jen told BioWorld Today.

But until the debt is resolved, he said, few investors would be willing to finance EPIX because of its debt priority, and that continues to be an overhang to the company stock, he said.

Shares in EPIX (NASDAQ:EPIX) were down 10 cents, or 21.7 percent, Tuesday, closing at 36 cents.

Still, Jen noted that the company's Alzheimer's disease drug study in collaboration with GlaxoSmithKline plc had shown robust data earlier and looks "very promising at the moment."

And without the debt on its balance sheet, EPIX would have more flexibility pursuing other financing options such as equity, Jen said.

At the end of 2008, EPIX reported $24.6 million in cash. With the additional capital from the sale of MS-325 to Lantheus, the company's cash is expected to last through August, Drapkin said.

In the Vasovist deal, EPIX retains the rights in Europe and outside the U.S., other than Canada and Australia, allowing it to pursue further monetization of those rights, it said.

MS-325 is the first imaging agent with an FDA-approved indication for magnetic resonance angiography (MRA). It is an injectable intravascular contrast agent designed to provide improved imaging of the vascular system. Currently, there are no other imaging agents approved for MRA in the U.S. Lantheus is planning to launch MS-325 under a different name before year-end.

EPIX's partnerships with Amgen and GSK also could provide opportunities to bring in additional capital, Drapkin said.

In December 2006, EPIX entered into a collaboration with GSK to discover, develop and market novel medicines targeting four G-protein coupled receptors (GPCRs) for the treatment of a variety of diseases, including PRX-03140, in Phase IIb for Alzheimer's disease.

Data from two Phase IIb trials of PRX-03140 are expected in 2010. EPIX has three other programs in a deal with GSK to screen and find new molecules for undisclosed disease targets.

The collaboration with GSK covering four different programs is worth a potential $1.2 billion.

EPIX also has an agreement with Amgen to develop orally available S1P1 modulators for the treatment of multiple auto-immune diseases that brought in a $20 million up-front payment.

EPIX and Amgen are collaborating on the development of existing EPIX preclinical-stage compounds and new S1P1 modulators.

The company also has a collaborative research, development and commercialization agreement with the Cystic Fibrosis Foundation Therapeutics Inc., focused on discovering potential drug therapies targeting the CFTR ion channel.

That agreement also has brought in milestone payments.