Assistant Managing Editor

The latest firm to opt for a reverse merger rather than the more traditional initial public offering, VistaGen Therapeutics Inc. inked a deal to merge with Excaliber Enterprises Ltd., a public shell listed on the Over-the-Counter Bulletin Board.

VistaGen's transaction came less than a month after regenerative medicine firm IntelliCell Biosciences Inc., of New York, said it was reaching OTC BB investors through its merger with Media Exchange Group, and followed a few months after cell therapy company Cambridge, Mass.-based Pathfinder LLC went public via a reverse merger with SyntheMed Inc. (See BioWorld Today, Dec. 27, 2010.)

Reverse mergers, though criticized for offering limited liquidity to shareholders, have become viable routes to public markets for small firms, especially those that still are early stage, like IntelliCell or Pathfinder, though VistaGen doesn't quite fit that description.

"It's not so much that we're early stage; we're 12 years old," said CEO Shawn K. Singh, adding that VistaGen looked at various strategic alternatives. Given the "size of our company and the business model we're running," a reverse merger deal fit the bill. "Our goals were to access the capital markets and to raise awareness of the company."

VistaGen will list initially on the OTC BB under a new ticker symbol to be designated once the newly combined company's name is officially changed. But the plan is to jump to a larger exchange such as the NYSE Amex or Nasdaq, "sooner than later," Singh said. That would expand VistaGen's visibility and help it grow an investor base.

Not that the OTC BB isn't helpful. "It's a good starting spot," he told BioWorld Today. "Investors are used to seeing biotechs on the OTC BB, and plenty of companies have started out there."

He pointed to diagnostic firm Neoprobe Corp., of Dublin, Ohio, which successfully made the leap from the OTC BB to the NYSE Amex earlier this year.

Helix BioPharma Corp. is another example. That firm, based in Aurora, Ontario, initially went public on the Toronto Stock Exchange. In 2009, the company made its move to the U.S. markets, with a listing on the OTC BB, which helped raise its profile, allowing for the move to the NYSE Amex in September. (See BioWorld Insight, March 21, 2011.)

For VistaGen, going public coincides with a new stage in the company's development progress.

"Right now, we're at a jumping off point," Singh said. The company has cash and also eliminated its debt, thanks to a $3.87 million financing of 1.1 million units priced at $3.50 each – including a $1.5 million investment by Platinum Long Term Growth Fund – concluded just prior to the Excaliber merger. And it's ready to put the stem cell technology it's been perfecting to work.

VistaGen's platform, known as Human Clinical Trials in a Test Tube, actually combines several stem cell technologies, including those developed by Gordon Keller, who heads up VistaGen's scientific advisory board and works out of a lab at the University Health Network's McEwen Centre for Regenerative Medicine in Toronto. Singh described it as a "versatile" platform that is based on the core differentiation technology; in other words, "what do stem cells become and how do they get there."

In one application, VistaGen is using human cells from pluripotent stem cells to create biological assays for drug screening. The aim is to "rescue" drug candidates that have proven efficacy but were shelved due to toxicity issues, largely because existing assays fail to provide adequate toxicity data, Singh said.

The firm is tackling cardiac toxicity first, since it's been a particularly troubling area. Its CardioSafe 3D system is designed to predict the in vivo cardiac effects of small-molecule candidates before they are tested in humans. Unlike the earlier assays, CardioSafe provides "clearly predictive data," Singh added. "So we don't need to have another Vioxx; we don't need to have another Avandia."

Vioxx (rofecoxib), a COX-2 inhibitor developed by Merck & Co. Inc., was voluntarily pulled from the market by the Whitehouse Station, N.J.-based pharma in 2004, while diabetes drug Avandia (rosiglitazone) from GlaxoSmithKline plc has been under fire for its cardiovascular side effects.

VistaGen is in the process of looking for drugs for its rescue efforts, seeking candidates that have established efficacy and millions of investment dollars behind them. "Sometimes is just takes some re-engineering through modern medicinal chemistry to put those drugs back on track," Singh said.

Beyond its drug rescue work, the company also plans to advance its preclinical cell therapy program based on its stem cell technology. Pilot programs are expected to focus on heart, liver and cartilage repair.

It also has a clinical-stage candidate, AV-101, an oral prodrug designed to convert in the brain into active metabolite 7-chlorokynurenic acid, an agonist of N-methyl-D-aspartate receptors. Data from a Phase I safety study are expected in the "near term," Singh said.

AV-101 is in development for neuropathic pain, epilepsy and neurodegenerative disorders such as Parkinson's disease and Huntington's disease. Development of AV-101 is being funded primarily by grant money from the National Institutes of Health.

In other financings news:

• Benitec Ltd., of Melbourne, Australia, raised A$8 million (US$8.5 million) in an oversubscribed offering. Proceeds will enable the firm to continue with further research and development of programs based on DNA-directed RNA interference technology, including advancing its chronic cancer-associated pain and drug-resistant lung cancer programs to Phase I/II and moving its hepatitis B program to completion of preclinical and toxicology studies. Funds also will be used to pursue opportunities in the licensing and collaboration of the company's patent estate and the termination of the funding arrangement with La Jolla Cove Investors Inc.

• Marina Biotech Inc., of Bothell, Wash., priced a public offering of 22.3 million units at 31 cents apiece for gross proceeds of about $6.9 million. Each unit consisted of one share of common stock and one Series A warrant to purchase one share of common stock. Proceeds are expected to help fund the clinical development of CEQ508, which is in Phase Ib/IIa testing in familial adenomatous polyposis, and to support general corporate purposes, including working capital and operational purposes. Roth Capital Partners acted as sole manager for the offer, set to close on or about May 20. Shares of Marina (NASDAQ:MRNA) fell 14 cents, or 35.9 percent, to close Tuesday at 25 cents.

• PDL BioPharma Inc., of Incline Village, Nev., completed the issuance of $155.25 million in aggregate principal amount of its 3.75 percent convertible senior notes due May 2015 in an underwritten public offering. Proceeds will be used to pay the cost of convertible note hedge transactions and to repurchase $133.5 million worth of convertible senior notes due Feb. 15, 2012.

• Resolve Therapeutics LLC, of Seattle, raised $2 million in the initial close of its Series A financing from New York-based venture firms New Science Ventures and Easton Capital. The company is developing RSLV-125, a biologic candidate aimed at inhibiting the production of interferon-alpha in the inflammatory cascade, to treat lupus. In connection to the funding Somu Subramaniam, of New Science Ventures, was appointed to the board and John Friedman, of Easton, was named an observer to the board.

• Targacept Inc., of Winston-Salem, N.C., said it plans to sell $75 million in shares of common stock. The number of shares and share price has not yet been disclosed. Proceeds are expected to support development of TC-5619, in testing for schizophrenia and attention deficit hyperactivity disorder, and other clinical-stage programs, as well as for working capital and other general corporate purposes. Deutsche Bank Securities Inc. is acting as sole book-running manager, while Lazard Capital Markets LLC, Leerink Swann LLC and Oppenheimer & Co. Inc. are acting as co-managers. Shares of Targacept (NASDAQ:TRGT) lost $1.82 Tuesday, to close at $21.18.