National Editor

Bolstered by $20 million in financing, Aphton Corp. said it will not restructure its co-promotion and licensing deal with Aventis Pasteur for the cancer drug G17DT and will allow a December letter of intent to expire.

The company does, however, plan to reduce spending in the next 12 months by more than 60 percent, to less than $16 million from about $40 million during fiscal 2002, although it did not specify how.

A spokeswoman for Aphton said the Miami-based firm had no comment beyond what was contained in a press release, and referred inquiries to documents filed with the Securities and Exchange Commission related to the financing.

SEC paperwork said the private placement "will allow [Aphton] to operate into the first quarter of 2004, without any additional funds. Accordingly, management believes that after the receipt of these funds, "the substantial doubt about our ability to continue as a going concern will no longer exist."

Aphton sold convertible 5-year interest-bearing notes and warrants to three institutional investors for $15 million in the closing of the first tranche. The notes are convertible at a fixed price of $2.50 per share. Also as part of the deal, the investors have been issued five-year warrants with a fixed price of $2.70 per share - both at a premium to the market price of the stock as of the last closing.

Aphton's stock (NASDAQ:APHT) closed Tuesday at $2.59, up 9 cents.

In the second tranche, subject to certain conditions, the company is obligated to sell and one of the investors is obligated to purchase an additional $5 million of notes and warrants convertible into stock.

Shareholders will meet for approval of certain aspects of the transaction, and Aphton said it has already secured irrevocable proxies from some existing shareholders to vote in favor of the transaction and expects a strong favorable majority vote.

In the deal with Lyon, France-based Aventis, the latter has co-promotion rights to the anti-gastrin immunogen G17DT and others. In December, Aphton sold a five-year, $3 million interest-bearing note to Aventis and said it signed a letter of intent to restructure the co-marketing agreement. Also in December, Aphton sold about 1.5 million shares at $2.375 each, raising about $3.6 million, and was examining its options.

Now, with the $20 million financing, the deal is secure. Retaining a royalty split of more than 50 percent for countries in North America and Europe, Aphton will seek to file for approval to market G17DT as a monotherapy for advanced pancreatic cancer patients in the European Union, Canada and Australia by September.

The company also aims to license G17DT for cancer outside North America and Europe, including Japan, where the focus will be on gastric cancer, and to license the drug for gastroesophageal reflux disease worldwide.

Last month, it said it had met with an undisclosed "foreign regulatory authority" to present Phase III data for G17DT in pancreatic cancer, and would begin preparing a regulatory filing. The drug showed a statistically significant overall median survival benefit of 83 percent in the most recent analysis, Aphton said, but the number of patients was not disclosed.