The third biotech to go public in the last week, NeurogesX Inc. priced its initial public offering of 4 million shares at $9 each for gross proceeds of $44 million.

That price fell well below the $13 to $15 price range set only a few weeks ago when the San Carlos, Calif.-based firm amended its offering terms. At the high end of that range, the company would have pulled in about $60 million, slightly less than the $69 million expected when NeurogesX filed for its offering in February. (See BioWorld Today, Feb. 9, 2007.)

Its lower-than-anticipated pricing puts the pain drug firm's IPO in line with the typical biotech offerings of the last few years. To date, 17 companies have gone public in 2007, raising an average of $43.1 million, according to BioWorld Snapshots. Though a few of those, such as San Diego-based Orexigen Therapeutics Inc., which priced its offering last week to raise $84 million, have come close to hitting their goals, the majority have fallen short of expectations. Pharmasset Inc., of Princeton, N.J., which also priced its offering last week, is raising $45 million, significantly less than the $75 million it had hoped for when filing for its offering last year. (See BioWorld Today, April 27, 2007, and April 30, 2007.)

On the first day of trading Wednesday, shares of NeurogesX (NASDAQ:NGSX) fell 75 cents to close at $10.25.

In its prospectus, the company said it expects the offering to yield net proceeds of $38.6 million - or $44.8 million, if underwriters exercise their full overallotment option of 600,000 shares. The majority of that funding is earmarked for research and development activities, including $25 million allotted to complete the clinical and regulatory program for lead drug candidate, NGX-4010, a synthetic capsaicin-based dermal patch in late-stage development in postherpetic neuralgia (PHN), pain associated with shingles, and HIV-associated distal sensory polyneuropathy (DSP). About $8 million will be used to get NGX-4010 through at least one Phase III trial in another indication, painful diabetic neuropathy (PDN), and $2 million is expected to fund development of NGX-1998, a liquid formulation of synthetic capsaicin, to Phase II for peripheral neuropathic pain.

Remaining funds will be used for general and administrative activities and for potential acquisition or licensing deals for complementary products or businesses.

Founded in 2000, NeurogesX focuses on developing therapies for pain management, with an initial concentration on chronic peripheral neuropathic pain, a type of pain that often results from an injury to the nerves or to nerve dysfunction associated with viruses, diseases and certain treatments. Though there are a handful of drugs approved, such as Lidoderm, a lidocaine patch for postherpetic neuralgia from Chadds Ford, Pa.-based Endo Pharmaceuticals Inc., and oral anticonvulsants Neurontin and Lyrica from New York-based Pfizer Inc., and even more at various stages of development, NeurogesX believes there's plenty of room for its candidates to tap into the neuropathic pain market, expected to increase to more than $5 billion in worldwide product sales by 2010.

As a non-narcotic analgesic, NGX-4010 contained an 8 percent concentration of synthetic capsaicin and is designed to be absorbed through the skin without significant absorption into the bloodstream, thereby preventing systemic side effects seen with other pain medications. The company has completed three trials of NGX-4010: one successful study in PHN, another successful study in HIV-DSP and second PHN study that missed its endpoint. Data collected to date are expected to form the basis for regulatory filing in Europe later this year. A new drug application in the U.S. would be submitted next year, pending positive results from two ongoing confirmatory Phase III studies.

NeurogesX owns all rights to NGX-4010 and intends to build its own sales force in the U.S. to market the product directly to pain centers and physicians. For marketing outside the U.S., the company anticipates seeking sales and distribution partners in Europe, Asia and Latin America.

Prior to the offering, the company's operations were funded with private financing totaling $86 million. NeurogesX, which reported a net loss of $30.1 million for 2006, ended the year with about $13.9 million in cash.

Its largest shareholder, ARCH Venture Partners, of Chicago, owned a quarter of the company before the IPO, with 2.1 million shares. Following the offering, ARCH owns about 16.8 percent. Other principal stockholders include San Francisco-based Alta Partners, which holds 1.6 million shares, or 12.6 percent after the IPO, and Walden International, also of San Francisco, which has 1.2 million shares, or 9.7 percent.

NeurogesX will have about 12.5 million shares outstanding after the offering.

Morgan Stanley & Co. Inc. acted as the sole book-running and lead manager, with Pacific Growth Equities LLC, Lazard Capital Markets LLC and Susquehanna Financial Group LLLP served as co-managers.

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