CytRx Corp. entered agreements to raise $37 million in a private placement, a move that will satisfy conditions of recent licensing deals made by its RNA interference-based subsidiary.

At least $15 million of the proceeds will be invested in the subsidiary, RXi Pharmaceuticals Corp., to which CytRx previously transferred its RNAi assets. RXi in January entered additional RNAi-based deals with the University of Massachusetts Medical School, deals that were contingent on funding and CytRx reducing its stake in RXi to a minority position.

Steven Kriegsman, president and CEO of Los Angeles-based CytRx, said CytRx will reduce its stake in RXi from the 85 percent owned before the deals to 49 percent, through a dividend or other distribution of RXi stock to CytRx shareholders. Initially, the 15 percent stake was held by the scientific founders of RXi, a who's who in the RNAi field. UMMS now also has an undisclosed stake in Worcester, Mass-based RXi.

After RXi becomes independent, CytRx will return to development of its small-molecule programs, with the lead one potentially heading into registrational trials later this year in amyotrophic lateral sclerosis.

"We at CytRx want Worcester to be the foremost city in the United States in the RNAi field," Kriegsman told BioWorld Today, adding that UMMS also is based there. "It is important to us in management and on the board to allow RXi to be an independent company, a pure-play RNAi company."

Alnylam Pharmaceuticals Inc., of Cambridge, Mass., probably would claim the top spot now in "pure-play" RNAi, a technology for selectively silencing and regulating specific disease-causing genes. Another leader in the field, Sirna Therapeutics Inc., of San Francisco, was acquired early this year by Merck & Co. Inc. for $1.1 billion.

The CytRx financing entailed the sale of 8.6 million shares at $4.30 per share, a nice premium to the $1.91 price at which CytRx stock closed in 2006. No warrants were included in the deal. CytRx in March 2006 raised $13.4 million through a sale of shares at $1.26 each, a deal that included 50 percent warrant coverage.

The March 2006 deal, Kriegsman said, was the highest-returning PIPE financing in the biotechnology sector in a period starting early in 2006 and going into March of this year.

CytRx expects to net about $34.4 million from the new financing, which included funding from 14 institutional investors. It now has about 85.6 million shares outstanding. CytRx's stock (NASDAQ:CYTR) fell 29 cents Wednesday to close at $4.51.

Lehman Brothers is acting as the lead placement agent on the financing. Co-placement agents are Oppenheimer & Co. Inc., Griffin Securities Inc. and Pulse Obsidian, a division of Pulse Trading Inc.

CytRx ended 2006 with about $30.4 million in cash and has since brought in about $11.1 million more through the exercise of warrants and options. Before the new money, the company had said it had funding to last into the first quarter of 2009. CytRx's lead compound, arimoclomol, was shown in September to be safe, well tolerated and crossed the blood-brain barrier in a Phase II trial in 84 patients with amyotrophic lateral sclerosis. The small-molecule compound is based on the company's molecular chaperone co-induction technology.

Kriegsman said CytRx plans to file for a special protocol assessment with the FDA to designate the upcoming Phase IIb trial as pivotal, meaning it would be designed to support a new drug application filing. The placebo-controlled study will be expected to enroll about 400 patients at 30 sites in the U.S. and Canada, with a primary endpoint of efficacy as measured by an ALS functional rating scale.

Kriegsman said the study is expected to get under way in the second half of this year, with a nine-month treatment period followed by a six-month open-label extension.

CytRx also is working on plans to develop a Phase II trial of arimoclomol in stroke, following positive data in a preclinical study in rats reported earlier this month. "We significantly accelerated recovery, even when the drug was administered 48 hours after the stroke," Kriegsman said.

CytRx also has the small molecule, iroxanadine, for cardiovascular indications and diabetic ulcers, and the HIV DNA vaccine, DP6-001, in earlier stages of development.

CytRx began work in the RNAi area in 2003 through licensing agreement with UMMS covering RNAi technology in the areas of obesity and Type II diabetes, as well as ALS. CytRx funded RNAi work since then, and early this year completed the spinout of RXi into a majority-owned subsidiary. (See BioWorld Today, Jan. 11, 2007.)

That was followed quickly in January by two new deals with UMMS. In the first, RXi got an exclusive therapeutic license, with rights to sublicense, to nanotransporters, which Kriegsman said is a potential "breakthrough" technology for systemic delivery of RNAi. The license also included compounds for ALS.

The second deal with UMMS was a master agreement providing RXi option rights to license all unrestricted therapeutic RNAi technology developed at UMMS over the next three years, in return for cash payments and equity.

RXi's initial focus is on neurodegenerative diseases, oncology, Type II diabetes and obesity. The lead program targets the mutant SOD1 gene, which is implicated in familial ALS. RXi is targeting 2008 for the start of trials in humans. A program targeting the RIP140 gene is expected to have applications in obesity and diabetes. The company later will disclose further details on programs in oncology, Kriegsman said.

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