By Karen Pihl-Carey

Staff Writer

Two private institutional investors purchased $10 million worth of NeoTherapeutics Inc.'s stock, giving the company enough money to advance Neotrofin through a Phase IIb trial in the U.S.

"This financing will enable us to go out at least eight months," said Sam Gulko, chief financial officer of the Irvine, Calif., company. "These investors invested with us in the past and have been very good investors. It's a fund, an institution, and we're comfortable with them."

The investors purchased a total of 845,594 shares of common stock at $11.83 per share, which represented a premium to the stock price at the time of the deal, Gulko told BioWorld Today.

The money will fund a Phase IIb trial, initiated in the U.S. in September, of Neotrofin. It is a double-blind, placebo-controlled study with 400 Alzheimer's disease patients. The trial will have three arms - placebo, a 50 mg dose and a 150 mg dose - and it involves a 90-day administration. It is expected to be completed in the spring of 2000. A 400-patient Phase IIb study of the same drug and indication started in February in South Africa, Canada and Australia.

Along with the shares purchased, the investors received five-year warrants to purchase 126,839 shares of common stock at $14.24 per share. They also received additional warrants to purchase an indeterminate number of shares based on the price of the company's common stock at two reset dates, four and six months subsequent to the closing.

If the average market price exceeds about $13.25 per share at each reset date, or if it exceeds certain average price levels during the two reset periods, the warrants are cancelable. NeoTherapeutics also has the option to redeem up to one-half of the shares of common stock sold at the closing, canceling the second reset.

Gulko said the pricing was based on the average of the 10 lowest closing bid prices over a 30-day period prior to the closing of the private placement. "We would have been above market," he said. "But it just so happened that the stock started to move in the last five days."

The company's stock (NASDAQ:NEOT) closed Monday at $13.187, down 81.25 cents. With the private placement, the company has about 8.8 million outstanding shares. As of Sept. 30, it had $6.9 million in cash, cash equivalents and marketable securities.

In June, NeoTherapeutics registered to sell 3.5 million shares in a public offering expected to raise up to $50 million. (See BioWorld Today, June 7, 1999, p. 1.)

The company completed the public offering through the sale of 1.15 million shares at $9.375 each for gross proceeds of about $10.8 million.

"It was cut back because we couldn't get the stock out at the price we wanted it to be out at," Gulko said. "And so it was not what we expected, so we cut it back. And what we're doing now really is fulfilling that funding requirement that we had back then."

Aside from Alzheimer's disease, Neotrofin is in the preclinical stage for spinal cord injury and stroke. The company expects to begin a Phase II trial in spinal cord injury early next year, Gulko said.

NeoTherapeutics has four other compounds in the preclinical stage: AIT-034 for severe dementia, AIT-203 for Parkinson's disease, AIT-297 for migraine and cardiovascular disease, and AIT-202 for depression and obesity.

The company also formed a new subsidiary last week to implement commercial applications and strategic partnerships that come out of its agreements with the University of California, Irvine. The subsidiary, NeoGene Technologies, will conduct research into orphan receptors to develop drugs to treat obesity, cardiovascular disease, stress-related health problems and neurological disorders.