Associate Managing Editor

If asked, Seattle Genetics Inc. President and CEO Clay Siegall would say investors believe small biotechnology companies can burn them two ways - by running out of money and/or having science that eventually fails. With agreements now for $40 million in financing, Siegall has reduced how dangerous his company is to investors.

"Most [investors] will say there are two risks: one is financing, the other a science risk," he told BioWorld Today. "We have a very deep pipeline in that we have multiple products," which reduces the science risk.

"For small biotech companies, there is an uncertain financing environment that exists [today]. This takes that uncertainty off our table for a number of years."

The Bothell, Wash.-based company entered a definitive purchase agreement to sell $40 million worth of Series A convertible preferred stock and warrants. The private placement would be led by JP Morgan Partners LLC, of New York, and Baker Brothers Investments. Also participating would be Delphi Ventures, of Menlo Park, Calif., and BA Venture Partners, of Foster City, Calif.

Seattle Genetics agreed to sell 1.6 million shares of the Series A stock, convertible into 16 million shares at a conversion price of $2.50, an amount based on a 30-day volume-weighted average sale price of Seattle Genetics' stock. Investors also would receive warrants to buy 2 million shares of stock at $6.25.

Seattle Genetics stock (NASDAQ:SGEN) rose 33 cents Tuesday, or 11.5 percent, to close at $3.20.

The agreement is subject to shareholder approval. However, if voted down, JP Morgan and Baker Brothers still would have the right to purchase up to 19.9 percent of Seattle Genetics' outstanding shares on similar terms. The company currently has about 30.8 million shares outstanding.

As of March 31, Seattle Genetics had about $21.6 million in cash, cash equivalents and short-term investments. It posted a net loss for the first quarter of nearly $6 million, similar to the first-quarter loss of 2002.

Siegall said the funds would provide Seattle Genetics with, "in addition to what we have, over three years of cash" and said the financing would be used to "support the further development of our pipeline."

Its product, SGN-30, a monoclonal antibody, will have its clinical program expanded. It is in a Phase I/II trial in Hodgkin's disease, certain non-Hodgkin's lymphomas and specific leukemias. SGN-40 is "moving along" through preclinical work and Seigall said the company is "planning to file an [investigational new drug] in the next eight months or so." That product, a humanized MAb targeted at the CD40 antigen, will be aimed at diseases such as multiple myeloma.

SGN-15 is an antibody-drug conjugate consisting of the monoclonal antibody BR96 linked to doxorubicin. The company has it in Phase II trials "in solid tumors, most notably in lung cancer," Seigall said. Seattle Genetics will present data on SGN-15 at the American Society of Clinical Oncology meeting in June.

Its antibody-drug conjugate, or ADC, technology is advancing elsewhere, as well. It has SGN-35 in preclinical work against hematologic malignancies and autoimmune diseases. There are other ADCs in preclinical development, Seigall said, and pointed out that Genentech Inc., of South San Francisco; Celltech plc, of Slough, UK; and Protein Design Labs Inc., of Fremont, Calif., all are partners with Seattle Genetics in the ADC area.

Although the product candidates are unpartnered as of now, Seigall would like that to change as the products mature.

"I think that for some of our product candidates it is important to partner appropriately," he said. "SGN-15 has shown encouraging data in lung cancer. I think we'd be delighted to partner SGN-15 in the next year." He added that the company is "talking to some people now."

If the financing completes, Srinivas Akkaraju, principal at JP Morgan, and Felix Baker, managing partner at Baker Brothers, would be added to Seattle Genetics' board, expanding it to nine members. If shareholders find any reason to vote against the financing, that reason might be the dilutive nature of the deal. However, Seigall stressed the need for supportive investors.

"Today's environment is challenging from a financial standpoint," he said. "I think that we wanted a strong financing solution here, so selling a large number of shares really fuels our growth. I think you need to work with strong financial groups that want to help grow a company. The important thing is deciding which value-adding investors will work with the company and help make it a success in the long run. And I think that is what we have done with this group."