BioWorld International Correspondent

PARIS - Diatos SA launched an initial public offering of its shares on the Eurolist market of Euronext Paris and Euronext Brussels, which should generate proceeds of around €25 million (US$31.8 million).

The Paris-based company is offering more than 3.8 million shares in the first instance, representing some 35 percent of its capital following the operation, and is offering an overallotment option equivalent to 15 percent of the initial number of shares offered. Following the operation, 25.9 percent of the company's capital would be in public hands.

The IPO would comprise a retail offering in France and Belgium and an international institutional offering. The retail offering will close July 7 and the institutional bookbuilding, July 10. The indicative price range is €6.50 to €7.50 per share.

The main existing shareholders in Diatos have undertaken to subscribe for new shares up to €9.4 million and to lock up both the securities they hold now and those they acquire for varying periods: at least 12 months in the case of securities issued since June 27, 2005; nine months in respect of securities issued previously; and 30 days in the case of the securities they acquire through the IPO.

The largest investors in Diatos at present are GIMV, of Antwerp, Belgium, which holds 21 percent; Sofinnova Partners, of Paris, with 16.4 percent; InterWest Partners, of Menlo Park, Calif., with 12 percent; Crédit Agricole Private Equity, of Paris, with 10.3 percent; Innoven, of Paris, with 9.9 percent; and AGF Private Equity, of Paris, with 8.9 percent.

The French bank Société Générale and KBC Securities, of Brussels, Belgium, are acting as joint lead managers and joint bookrunners, and Kepler Equities as manager, while the placing agents in Belgium are KBC Securities, KBC Bank, CBC Banque and SG De Martelaere.

Diatos' finance director, Christophe Bourrilly, acknowledged the company had originally hoped to raise between €30 million and €50 million through the IPO but had scaled down the operation because of unfavorable market conditions. But he said €25 million would be sufficient to fund the company's activities until the end of 2008 and that it would then return to the market. He declined to say when Diatos would move into profit, indicating only the company would be in a sound financial position by 2011.

The company's burn rate averaged €600,000 to €700,000 a month in 2005, and Bourrilly said it would be more than that in 2006. He pointed out that the company might be able to exploit out-licensing possibilities to generate some revenues in the coming years. In 2005, the company posted a net loss of €7.5 million, down from €8.1 million in 2004. As at Dec. 31, Diatos held cash and equivalents of €4 million.

Diatos has a portfolio of four drugs and drug candidates in clinical and preclinical development, most of which is in-licensed from third parties. Its strategy is to improve existing drugs using its peptide-based, intracellular drug delivery and tumor-targeting technologies, Vectocell and TSP.

Diatos' lead product is DaunoXome, a liposomal formulation of daunorubicin that is on the market in more than 20 countries for AIDS/HIV-related Kaposi's sarcoma. Diatos acquired worldwide rights to DaunoXome in Kaposi's sarcoma and other potential indications under an agreement signed with Gilead Sciences Inc., of Foster City, Calif., on May 11.

Diatos plans to exploit the potential of DaunoXome for treating acute leukemia, after a Phase III trial in elderly acute myeloid leukemia (AML) patients completed in January demonstrated a better clinical outcome for those receiving the product as a first-line treatment compared with those administered regular daunorubicin. Diatos plans to file DaunoXome as a treatment for AML and acute lymphatic leukemia with European regulatory authorities within the next few weeks, hoping to obtain marketing approval in early 2007.

In addition, Diatos is developing a gel formulation of paclitaxel, DTS-301, for solid tumors. The drug is injected directly into tumors in liquid form and is in Phase II trials in the indications of breast cancer and esophagus cancer. Diatos in-licensed DTS-301 from MacroMed Inc., of Sandy, Utah, which developed the polymer gel formulation and has granted Diatos rights for Europe and Japan. MacroMed is conducting the Phase II trial in esophagus cancer, and both Phase IIs are scheduled for completion at the end of 2006.

Diatos has a third product at the Phase I stage, DTS-201, a doxorubicin prodrug it is developing for various cancers, including prostate. It licensed European development and commercialization rights to the drug from Medarex Inc., of Princeton, N.J., under an agreement signed in January.

The fourth product in Diatos' pipeline is DTS-108, a new generation prodrug of SN-38, the active metabolite in irinotecan, an anticancer chemotherapeutic agent marketed by Pfizer Inc. that generated sales of $911 million for the New York-based company in 2005. The product is in preclinical development and Diatos plans to initiate a Phase I trial in 2007. n