A day after dropping the range of its proposed share price by $3, Pharmasset Inc. priced its initial public offering of 5 million shares at $9 apiece to raise $45 million in gross proceeds.

The Princeton, N.J.-based firm had hoped to raise as much as $75 million when it filed to go public in May 2006. That money would have covered the estimated cost of the company's upcoming Phase III program for clevudine, which is expected to begin this quarter. However, Pharmasset, which set a price range late last month of between $12 and $14, decreased that last week to between $9 and $11. Proceeds still are expected to go toward clevudine's pivotal program, though the company said, in its prospectus, that it would have to raise additional capital through public or private equity or debt financings to complete those trials, which are estimated to cost about $72 million.

Net proceeds from the offering are expected to be about $39.1 million - or $45.4 million, if underwriters exercise their full overallotment option to buy an additional 750,000 shares. The company, which reported a net profit of $3.9 million for the last three months of 2006, ended 2006 with cash, cash equivalents and short-term investments totaling $30.6 million.

On its first day of trading, Pharmasset's stock (NASDAQ:VRUS) gained 7 cents to close at $9.07.

The company, which is developing nucleoside analogues against viruses, such as hepatitis B virus (HBV), hepatitis C virus (HCV) and HIV, has three clinical compounds in its pipeline, leading off with clevudine, an oral, once-daily pyrimidine nucleoside analogue for HBV. That product was licensed from Korean firm Bukwang Pharm Co. Ltd., which recently gained approval to market clevudine in Korea under the brand name Levovir. Pharmasset expects to begin Phase III trials in the U.S. and Europe to determine the drug's efficacy compared to adefovir when given to patients at 30 mg per day over a 48-week treatment period.

Following clevudine in the pipeline is Racivir, an oral, once-daily cytidine nucleoside analogue for use in combination therapy in HIV patients. That product recently completed a Phase II trial, where it demonstrated an 80 percent reduction in viral load in the second week of treatment in patients carrying the M184V mutation, with 28 percent of those achieving an undetectable level of virus and 64 percent achieving at least a 0.5log10 decrease in viral load.

Pharmasset has a Phase I-stage product, R7128, which it partnered with Basel, Switzerland-based F. Hoffmann-La Roche Ltd. in 2004 to develop against HCV. R7128 is a prodrug of oral cytidine nucleoside analogue PSI-6130. The product has moved into the second stage of a Phase I trial, which involves dosing 40 HCV-infected patients for 14 days, and results are expected in the third quarter. Upon successful complete of the Phase I study, or upon initiation of Phase II development, Pharmasset stands to receive a $7.5 million milestone payment from Roche. Under the terms, Pharmasset is eligible to get up to $135 million in development and commercial milestones. (See BioWorld Today, Oct. 28, 2004.)

Following the offering, Pharmasset will have about 20.5 million shares outstanding. The company's principal shareholders include MPM Capital LLC, which holds 3.8 million shares, and will own 18.9 percent of the company after the offering; TVM Capital, which has 1.7 million shares and will own 8.6 percent; Burrill & Co., which holds nearly 1.7 million shares and will own 8.2 percent; MDS Capital, which holds 1.2 million shares and will own 6 percent; and Raymond Schinazi, the principal founder of Pharmasset, who holds 2.8 million shares and will own 13.8 percent of the company following the offering.

Banc of America Securities LLC and UBS Investment Bank are acting as joint book-running managers, and JMP Securities is acting as co-manager.

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