West Coast Editor

Having started the year with a $70 million initial public offering, Molecular Insight Pharmaceuticals Inc. priced $150 million in bonds due in 2012, as other companies made known their new IPO bids in a still-tight market.

The MI deal, with a syndicate of institutional investors, involves warrants to buy about 6 million shares of stock, representing an 18 percent dilution of common shares on a fully diluted, post-money basis, and provides funding to reach the launch of MI's first product, said David Barlow, president and CEO. The firm had cash, cash equivalents and short-term investments of $38.7 million as of September 30.

Cambridge, Mass.-based MI's shares (NASDAQ:MIPI) closed Monday at $6.84, up 65 cents.

"We evaluated several financing options," Barlow said, including a PIPE in the range of $30 million to $40 million, but MI "would have been back to the market in the first quarter of next year." When the firm priced its IPO in February, officials pointed out that the money raised would finance operations into 2008's second quarter. (See BioWorld Today, Feb. 5, 2007.)

The bond arrangement provides a lower cost of capital with less dilution over time, Barlow said. "The size takes [further] financing off the table" near term, he added. "That had, of late, been on investors' minds."

Along with the five-year maturity date, the bonds bear a coupon equivalent to the London Bank Inter-Bank Offer Rate plus 8 percent, determined quarterly. The warrants' exercise price is $5.87, equivalent to the closing bid price of MI common stock as of the close of trading last Thursday. The bonds are redeemable by MI, at its option, starting Nov. 16, 2008.

Terms of the bond sale allow MI to begin paying the interest in year one or beginning in year four. "Interest will be accruing, but we can void the cash-out until the fourth year," Barlow said, adding that the deal "is not premised on any one drug succeeding."

Focused on radiotherapeutics and molecular imaging, MI's pipeline includes orphan drug Azedra (which also has fast-track status with the FDA) for detection and treatment of neuroendocrine tumors, and orphan drug Onalta, a receptor-based radiotherapeutic for cancer, as well as Zemiva for detecting cardiac ischemia in emergency settings.

MI acquired Onalta from Novartis Pharma AG, of Basel, Switzerland, in January to complement Azedra. The radiolabeled peptide, previously known as OctreoTher or Y-90 SMT-487, already had been studied in several U.S. trials.

Behind those candidates are Trofex to detect prostate cancer and Solazed for the treatment of malignant melanoma; both are expected to enter the clinic by the middle of next year.

With Azedra - a meta-iodobenzylguanidine (MIBG) molecule that's been radiolabeled with MI's Ultratrace technology - likely to become the first launched product in 2009, MI plans to start a Phase II pivotal trial in the second half of next year, finishing a Phase I dose-ranging trial in pheochromocytoma during the first half, and starting a trial in neuroblastoma during the same period.

"The initial market [will be in] refractory patients who have no other options," Barlow said. "There is no competition. This is a molecule that is known to work in its current formulation, and we expect to be improving on that formulation," although MI does not expect regulators to require that, he said.

The MIBG molecule already is approved in Europe and had been available in the U.S. on a compassionate-use basis, but the University of Michigan quit supplying the drug in late 2005.

Questions had arisen regarding whether the university "should be in the business of supplying unapproved drugs," Barlow told BioWorld Today, but there was "quite a bit of anxiety within the community when even that limited supply dried up." MI will market and sell the product itself in the U.S., he said, estimating that the concentrated customer base would require five to 10 highly specialized sales reps. Regarding a marketing partner outside the U.S., MI will "keep our options open," Barlow said.

A Phase I dosimetry trial with Onalta, a somatostatin receptor-targeted molecular radiotherapeutic peptide for the treatment of neuroendocrine tumors, also will start in the first half of 2008, which is when the pivotal registration Phase II study with Zemiva is scheduled to finish.

Zemiva - based on I-123-BMIPP, sold in Japan under the name Cardiodine and used in the nonacute setting for more than 10 years - will enter a confirmatory Phase III pivotal trial in the second half of 2008. The compound is a radiolabeled fatty acid analogue, a fat-like molecule that allows doctors to visualize the heart's use of fats as an energy source.

John Babich, president and chief scientific officer for MI, pointed during a conference call with investors to positive Phase IIb data with Zemiva, presented in September at the annual meeting of the American Society of Nuclear Cardiology.

"We believe, in regard to what the FDA is looking for, and also what our clinicians are looking for, those are the key findings," Babich said. "Sensitivity, particularly in patients with troponin-positive biomarkers, was one of the things that was particularly important." Troponin is a marker of cardiac necrosis.

If all goes well, Zemiva would follow Azedra to market. Barlow predicted MI "can cover [sales] with roughly 100 representatives," adding that an overseas partner for the product would be sought after MI has Phase III confirmatory data.

Trofex, described as a prostate-specific membrane antigen-targeted molecular imaging pharmaceutical, will enter a Phase I dosimetry trial in the first half of next year, as will Solazed, a targeted radiotherapeutic small molecule.

In other financing news:

• BrainStorm Cell Therapeutics Inc., of New York, completed a second equity financing with ACCBT Corp., a company under the control of BrainStorm's President, Chaim Lebovits. Proceeds from the $750,000 financing will be used to build a vivarian facility to test BrainStorm technologies, as well as to conduct preclinical studies, efficacy and toxicity studies in connection with the company's efforts to treat and cure Parkinson's disease and ALS (Lou Gehrig's disease), and allow BrainStorm to extend its research to focus on additional illnesses. The investment was contemplated by the previous agreement between ACCBT and BrainStorm announced in July.

• Chemocentryx Inc., of Mountain View, Calif., filed to raise up to $57.5 million in an IPO, but didn't disclose the targeted number of shares or share price. The firm hopes to trade on Nasdaq under the symbol "CCXI," and would use IPO proceeds for development of its lead product candidate, Traficet-EN, which yielded positive Phase II data for Crohn's disease that were reported in May.

• Epix Pharmaceuticals Inc., of Lexington, Mass., entered definitive agreements with institutional and accredited investors with respect to the private placement of about 5.2 million shares of its common stock at a purchase price of $3.10 per share for expected gross proceeds of about $16.3 million before payment of placement agent commissions and offering expenses. Epix expects to use the proceeds to finance ongoing clinical trials, advance its research and development activities and fund general corporate operations. Closing is expected to occur on or about Nov. 15, 2007.

• Xanodyne Pharmaceuticals Inc., of Newport, Ky., filed for an IPO but did not specify a price per share or number of shares targeted.