As it prepares to bring two more of its internally discovered products into the clinic, Metabasis Therapeutics Inc. raised $41.3 million in a private placement of common stock and warrants.

The San Diego-based company sold about 7 million shares at $5.86 per share. Metabasis intends to use the proceeds for working capital purposes, including developing MB07133 for primary liver cancer, MB07803 for Type II diabetes and MB07811 to treat high cholesterol.

"It's a very significant financing for us. It's, I believe, the largest we've done," said Paul Laikind, president and CEO of Metabasis. "It provides us the funds that we need to really push our development pipeline forward fairly aggressively."

The buyers, which included a mix of current and new institutional investors, also received warrants for about 2.5 million shares at an exercise price of $6.74. They paid an additional purchase price equal to 12.5 cents per share issuable upon exercise of the warrants. Metabasis' stock (NASDAQ:MBRX) rose 17 cents Monday to close at $6.

New York-based SG Cowen & Co. LLC is acting as lead placement agent, while Rodman & Renshaw LLC, also of New York, is serving as co-agent.

Metabasis has five internally discovered products in development targeting major metabolic and liver diseases. Two of the products, CS-917 and Pradefovir, have shown preliminary evidence of efficacy in Phase II trials. CS-917 is being developed with Tokyo-based Sankyo Co. Ltd. to treat diabetes, while Pradefovir is being developed with Valeant Pharmaceuticals International Inc., of Costa Mesa, Calif., to treat hepatitis B. Metabasis retains all rights to its other three candidates.

"One of the reasons for this financing was to allow us to build our internal infrastructure to take these products forward further ourselves," Laikind said. "Our goal is to take them to proof-of-efficacy when we can do much more lucrative, transforming partnerships."

The company's products were discovered and developed using its NuMimetic and HepDirect technologies. Pradefovir is a prodrug of adefovir developed using HepDirect, which allows for higher concentrations of the drug in the liver. Phase II 24-week interim data reported in July showed the antiviral compound gave a robust and significant reduction in viral load when treating compensated chronic hepatitis B patients.

"We're actually expecting to use that 24-week data in discussions with the FDA to hopefully go into Phase III" in early 2006, Laikind told BioWorld Today.

MB07133, also developed using HepDirect, targets the active form of araC to the liver, but decreases levels of the drug in outside tissues. It currently is in a Phase I/II study to determine the maximum tolerated dose in primary liver cancer patients. The trial should be completed by the end of the year.

A Phase IIb trial of CS-917 is expected to begin in the fourth quarter. Metabasis and Sankyo recently decided to resume full development after they halted a Phase IIb trial in March when two serious adverse events involving lactic acidosis were reported in combination studies with metformin. The companies determined that the two patients that experienced the events had blood levels of metformin that were elevated compared to other patients in the study that received metformin before being administered CS-917 - a product designed using the NuMimetic technology to inhibit a metabolic pathway in the liver responsible for producing glucose. (See BioWorld Today, March 17, 2005.)

Metabasis' two other candidates, MB07803 and MB07811, are at an earlier stage of development. The company expects to file an investigational new drug application for the first one, a second-generation gluconeogenesis inhibitor, this quarter. An IND filing for MB07811 could occur in the second quarter of 2006.

"We have not yet discussed the exact mechanism [of MB07811] other than to say it builds on our liver-targeting capabilities," Laikind said.

In June, Metabasis signed a potential $74 million partnership with Whitehouse Station, N.J.-based Merck & Co. Inc. to develop small-molecule drugs targeting the liver enzyme AMP-activated protein kinase, which will be used to treat disorders such as Type II diabetes, hyperlipidemia and obesity. The companies also are collaborating in hepatitis C. (See BioWorld Today, June 28, 2005.)

The $41.3 million private placement is the first financing conducted since Metabasis raised $35 million in its initial public offering completed in June 2004, selling 5 million shares at $7 apiece. (See BioWorld Today, June 17, 2004.)

Before that, the company raised $24.9 million in a October 2003 private placement. Investors in that financing included Boston-based MPM Capital; InterWest Partners, of Menlo Park, Calif.; The Sprout Group, also of Menlo Park; and Wellcome Trust, of London, among others.

Metabasis expects to have operating expenses of between $28 million and $30 million for 2005. "With the entry of these other products into the clinic, the expenses will be increasing as we go into the next couple of years," Laikind said.

In other financing news:

AVI BioPharma Inc., of Portland, Ore., said the U.S. Senate Committee on Appropriations approved $22 million for AVI's research and development programs as part of the fiscal year 2006 defense spending bill. If approved by the full Senate, the bill would direct the money to AVI to develop technology to test for and find therapeutic agents for Ebola and Marburg viruses, and anthrax and ricin toxins. The allocation also includes new funding for an AVI project in the area of dengue virus.

Dynavax Technologies Corp., of Berkeley, Calif., expects to offer 4 million shares of common stock in a public offering through its shelf registration statement. The company intends to grant the underwriters an option to buy up to 600,000 shares of common stock to cover overallotments. Bear, Stearns & Co. Inc. will act as lead manager, while CIBC World Markets Corp. and Pacific Growth Equities LLC will act as co-managers for the offering.

LigoCyte Pharmaceuticals, of Bozeman, Mont., was awarded a $4.6 million challenge grant from the National Institutes of Health for the preclinical advancement of its intranasal vaccine against anthrax. The product is a dual-antigen vaccine in a dry-powder formulation that protects against both the anthrax toxin and the infectious disease process. Early results show the potential for the vaccine to offer protection after only a single dose.

Lipid Sciences Inc., of Pleasanton, Calif., closed its previously announced private placement of common stock and warrants, raising about $7.2 million in gross proceeds. It could raise about $4.5 million more from the exercise of the warrants. The company offered 2.4 million shares at $2.98 each. Net proceeds will go toward product development efforts. AG Edwards acted as the placement agent.

Oscient Pharmaceuticals Corp., of Waltham, Mass., filed a shelf registration statement to sell up to $100 million of its common stock from time to time. The company expects to use proceeds for general corporate purposes, including expanding commercial and marketing efforts, increasing working capital, funding clinical development, and acquiring new products or technologies. Oscient also said it expanded to 300 the number of primary care pharmaceutical sales representatives detailing its products. The national sales force is focused on promoting the antibiotic Factive, as well as Testim testosterone gel.

Tessera Inc., of Seattle, completed a Series B round of financing, raising $8.5 million. The company, founded in 2000, has developed data for blood tests for prostate and colon cancers through its relationships with Johns Hopkins University and the University of Pittsburgh. The financing will help Tessera to prepare the technology for clinical trials and commercialization.