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Preparing for Phase III work with its lead drug for non-small-cell lung cancer, Novelos Therapeutics Inc. entered a definitive agreement to sell $15.06 million in stock and warrants to institutional investors.

The buyers will pay $1.35 per share for 11.15 million shares, and warrants for another 8.37 million shares at an exercise price of $2.50 each.

Novelos’ stock (OTCBB:NVLT) closed Friday at $1.90, down 10 cents.

The cancer drug, NOV-002, is one of two oxidized glutathione-based compounds (the other is NOV-205 for chronic hepatitis C) already approved for use in the Russian Federation where they were developed. Marketed under the trade name Glutoxim by Moscow-based PharmaBAM, NOV-002 will be studied this year in a single pivotal trial in the U.S., which the company hopes will be conducted under a special protocol assessment from the FDA.

"That’s certainly the plan," said Harry Palmin, president and CEO of Newton, Mass.-based Novelos, noting that talks went well with the agency, after the firm gained positive results from a Phase II study. During the end-of-Phase II meeting, the FDA agreed that a single study would be enough to support approval of the drug in combination with chemotherapy for Stage IIIb/IV NSCLC patients.

"The design [of the proposed Phase III trial] is very straightforward," he added, and would last three years, starting enrollment of front-line, chemotherapy-na ve patients in the third quarter.

"Chemotherapy is great at killing cancer - unfortunately, it also kills the patient," Palmin pointed out, but when NOV-002 is given with chemo, "right away [patients] start to feel better, their blood indices improve, their immune indices improve, and they can take more cycles of chemotherapy," he said.

Targeted cancer therapies "are not the answer in themselves," Palmin said. "They’re extremely expensive and marginally effective," whereas NOV-002 is inexpensive, easy to manufacture and offers the synergy with chemotherapy as well as benefits of its own.

Palmin told BioWorld Today that he wants to retain U.S. rights to NOV-002 "until we get positive results from the Phase III trial," but by mid-2007, intends to have a deal for rights outside North America.

The HCV drug, NOV-205, which is designed to act as a liver-protective agent with immunomodulating and antiviral activity, also is approved for use in the Russian Federation. Commercialization is starting there under the trade name Molixan.

In the U.S., Novelos plans to file an investigational new drug application shortly and begin a study in the second quarter.

Founded in 1996, Novelos has six full-time employees who are part of a "core team" of 15 people, said Palmin, whose family came from Russia and whose father, an entrepreneur, "was very skeptical at first," when he returned to the country and began to examine intellectual property on which Novelos eventually was based.

He became a believer, though, and with his son established a U.S. presence for Novelos.

"I grew up at Morgan Stanley and Lehman Brothers on the product side," Palmin said. "I saw a lot of deals come and go, and I always had the entrepreneurial itch."

Placement agents in the stocks-and-warrants sale are Oppenheimer & Co. and Rodman & Renshaw, both of New York.

In other financing news:

• Angiotech Pharmaceuticals Inc., of Vancouver, British Columbia, intends to offer $250 million in aggregate principal amount of senior subordinated notes due 2014 in a private placement, subject to market and other conditions. Certain of Angiotech’s direct and indirect subsidiaries will guarantee the notes on a senior subordinated basis. The company expects the offering, conditional on the acquisition of American Medical Instruments Holdings Inc., of Lake Forest, Ill., is expected to finalize in late March. Proceeds will be used in part the company’s acquisition of AMI, repay the existing debt of AMI and pay fees and expenses related to the acquisition and the issuance of the notes. Angiotech disclosed about a month ago its plan to buy AMI for about $792.8 million in cash.

• CytRx Corp., of Los Angeles, entered into definitive agreements with a group of institutional investors to raise about $13.4 million from the private sale of common stock and warrants for the purchase of common stock, with net proceeds to CytRx of about $12.4 million after expenses. Under the terms, CytRx will sell 10.65 million shares of common stock at $1.26 per share and issue warrants to buy about 5.33 million shares of common stock at $1.54 per share. Proceeds will fund ongoing clinical development, the company said, notably the Phase II trial with its lead small molecule, arimoclomol, targeting amyotrophic lateral sclerosis. CytRx’s stock (NASDAQ:CYTR) closed Friday at $1.60, up 22 cents. T.R. Winston & Company LLC, of Bedminster, N.J., is acting as the lead placement agent on the transaction.

• MediGene AG, of Martinsried, Germany, is increasing its share capital from about €18.76 million ($22.57 million) to about €20.62 million, through shares issued from authorized capital against cash. In the course of the private placement, the shares will be issued at a price of €8.45 without subscription rights for existing shareholders. The price is calculated as the average of the last five closing prices of MediGene shares on XETRA trading at the Frankfurt Stock Exchange, less a five percent discount.

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