Genta Inc. announced Monday that it has raised net proceeds of approximately $22 million in a private placement of 477,540 units at $50 per unit.
Each unit consists of one share of the San Diego company's Series A convertible preferred stock and a warrant to acquire one share of the company's common stock (NASDAQ:GNTA).
Alex. Brown & Sons Inc. and Montgomery Securities were placement agents.
The preferred stock is convertible into shares of Genta common stock at $9 per share, subject to adjustment in certain conditions. Dividends are payable on the preferred stock.
Genta is required to redeem the preferred stock, subject to certain conditions after three years at a redemption price of $50 per share of preferred stock, plus accrued and unpaid dividends.
The warrants will be exercisable for five years at a price equal to $10.50 per share of common stock.
Genta will file a registration statement (regulation D) covering the resale of the preferred stock, the warrants and the common stock underlying the preferred stock and the warrants within 60 days. The preferred stock and the warrants will not be listed on any securities exchange or quoted in any over-the- counter market.
In February, Genta had tried raising funds publicly through a secondary stock offering of 2.5 million shares of common stock, but withdrew the offering in April because the market had proved generally inhospitable to biotechnology stocks. Genta's common stock had been trading at $11.50 a share when it filed for the secondary but had dropped by almost 40 percent to $7 per share by the beginning of April. On Monday the stock closed at $7.75 a share, up 75 cents.
The financing vehicle that Genta chose in this case differs from another method that the majority of public biotechnology companies have used in the past several months. In that mode, the company raises money by selling newly issued shares of its common stock to private investors at a discount to the publicly traded price of the stock.
Genta, however, has "tried to avoid discounting, which would create more dilution of the stock," explained Howard Sampson, the company's vice president and controller. Genta maintained the stock's value by placing units that it is obligated to trade after three years, but which it could redeem after 18 months (depending on circumstances), Sampson said.
"The stock will convert at $9 and the warrants will convert at a premium to the market," he added. "We wanted to tailor the instrument to our specific needs," Sampson told BioWorld. "We needed something with a three-year life that we could then convert to common stock."
At the end of June, Genta reported second quarter cash, cash equivalents and short-term investments of about $15.8 million.
The company intends to use the $22 million from its private placement to fund preclinical and clinical trials conducted by its joint venture with Jagotec AG, ongoing clinical trials for Genta's dermatology products, and other research and development activities.
-- Jennifer Van Brunt Senior Editor
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