West Coast Editor

To refinance its debt while pushing product development, the Bioniche Life Sciences Inc. raised C$21.4 million (US$18.5 million) through a mixed bag of shares, debt, convertible debt and a warrant with New York-based Laurus Funds, which put the deal together.

"We'll bring our debt down from about C$35 million to about C$5 million," said Graeme McRae, president & CEO of Belleville, Ontario-based Bioniche, noting that the firm also is selling off some assets in Ireland, which also helps.

"If we didn't do anything else, we're probably OK for a year, but we have other things in process," he said. A major near-term push is getting a pivotal-trial plan in front of the FDA for the company's bladder cancer drug.

"We hope to submit that in the first quarter of next year," he said. "If it's the first quarter, I'll be ecstatic; if it's the second, I'll be happy and if it's the third, I'll be a bit disappointed."

The agency "could come back and say they want another rat study," McRae acknowledged. "It's in the lap of the gods. But if we get into a pivotal trial situation, we'll [probably] have cash from a marketing partner," since many have shown interest in collaborating in Europe.

"An equity financing would be the logical thing to do at that point" as well, he said.

Meanwhile, Bioniche is paying out a $647,500 cash fee as part of the financing courtesy of Laurus that involves a three-year, $4 million operating loan based on eligible inventory and accounts receivable, with interest at The Wall Street Journal prime rate (a consensus determined by the newspaper's survey of major banks).

There also is a three-year, $7 million secured convertible term loan with interest at the greater of 6.5 percent or WSJ prime plus 2 percent, with reductions based on increases in Bioniche's stock price and convertible at about C96 cents per share.

That loan's principal amount is amortized monthly, and any monthly principal installment must be converted if Bioniche shares trade at a 15 percent premium to the conversion price, and may be paid off by Bioniche in common shares at a 15 percent discount to the then-market price, subject in each case to trading volume limits. The amount advanced under the facility was discounted by $915,000.

Another part of the deal - a four-month, $7.5 million secured bridge loan - is to be repaid from the proceeds of the proposed sale of Bioniche's Irish Pharma operation. In October, Bioniche signed a non-binding letter of intent to sell its majority ownership stake (about 65 percent) in Bioniche Pharma Group Ltd. to RoundTable Healthcare Partners, a U.S. health care-focused equity group. Bioniche Pharma is a business unit of Bioniche Life Sciences that sells injectable pharmaceuticals in County Galway, Ireland. Terms were not disclosed.

The benefit of that deal is not in the up-front cash but in royalties and earn-out in the retained ownership, McRae said, adding that "over the next four or five years, we're going to make a lot of money out of that."

Selling the Irish assets equates to "getting rid of the dribs and drabs to focus on what we should be doing," he said, and the Irish injectables business always had been intended to fund research and development.

"Put that [Ireland sale] together with the Laurus deal, and the company's in pretty good shape," McRae said.

If the sale is not completed and the loan is not paid at maturity, it automatically will have the same terms as the $7 million convertible loan except that the conversion price will be based on the market price for Bioniche shares at the time, and Bioniche will issue additional common shares at no consideration, equal to 6 percent of the amount of the extended loan.

The financing also included about 1.3 million common shares bought by Laurus for $915,000 and a five-year warrant to acquire 800,000 common shares at C$1.10 each.

"That gives them their upside, if we're successful in what we're doing," McRae noted, adding that Laurus investigated Bioniche thoroughly, but the deal moved with speed.

"We started talking to them in June, and we had a term sheet in August," he said.

The arrangement might seem expensive "if you take the cash fee and the shares [issued]," McRae allowed, "but we've been paying as high as 18 or 19 percent on short-term debt securities. By paying [Laurus] cash and shares up front, the interest rate going forward is very easy to manage."

No more than 15 million shares can be issued in the fund-raising bid, by approval of shareholders in November, and Bioniche has arranged a private placement of 764,041 common shares for C$611,233 or C80 cents per share, to the holders of senior debt being repaid from the proceeds of the new financing. If the sale of the Irish operation goes through, Bioniche's only debt will consist of the $4 million operating loan and the $7 million term loan in the U.S.

Bioniche already markets two products based on hyaluronic acid, which is one of the company's platform technologies. Cystistat treats interstitial, bacterial and radiation-induced cystitis and Suplasyn is used as a replacement for synovial fluid in osteoarthritis patients.

In the pipeline, the company (which also works in animal health) has Mycobacterial Cell Wall-DNA Complex (MCC), which has yielded positive Phase I/II data against superficial bladder cancer, for which the pivotal-trial design is under way.

MCC is a non-viable cell wall composition prepared from saprophytic microorganism Mycobacterium phlei. The compound acts as an immune stimulant and as a cell cycle arresting, proliferation-inhibiting and apoptosis-inducing agent against cancer. Bioniche already has a manufacturing plant for MCC ready to run.

"We can make commercial product today," McRae said. Phase II studies in prostate cancer also are being designed with MCC plus hyaluronic acid.

Bioniche's stock (TSE:BNC) closed Friday at C75 cents, unchanged.

In other financing news:

Lpath Therapeutics Inc., of San Diego, upon merging with a specially formed subsidiary of Neighborhood Connections Inc., of Webster, Texas, raised $6 million in a private placement. NCI is a startup formed to provide the service of collecting pay-phone coin revenues, and the newly made company changed its name to Lpath. Lpath's theranostics bid is focused on bioactive signaling lipids as targets. The lead product candidate, still at the preclinical stage, is Sphingomab, a monoclonal antibody against the validated cancer target sphingosine-1-phosphate. Lpath said the drug has shown "compelling" results in seven forms of solid-tumor and blood-borne cancers. Its stock under a new ticker (OTC BB:LPTN) closed Friday at $1.10, unchanged.