Washington Editor

A stock and warrant sale is providing a much needed shot in the arm to La Jolla Pharmaceutical Co., which is raising $66 million in gross proceeds to hopefully get Riquent (abetimus) across the finish line.

"This financing provides substantial support to move Riquent forward," said Andrew Wiseman, the company's senior director of business development and investor relations, specifying that "virtually all of this funding" will be applied to an ongoing Phase III trial of the lupus product. "It's a huge step forward."

As of June 30, La Jolla Pharmaceutical's coffers had just $21.8 million remaining in cash, cash equivalents and short-term investments, so the added funds extend its operational runway by about two years beyond previous projections of next quarter. Going forward, most of the San Diego company's employees will remain focused solely on registering Riquent, a product developed to target immune system cells that produce double-stranded DNA, though a small research program is exploring an enzyme target called SSAO for inflammation.

"We're an incredibly determined bunch," Wiseman told BioWorld Today. "We've been working on this project since the company began."

The program has hit some rough patches of late, though, testing that resolve.

A year ago, the FDA asked for another clinical trial in issuing an approvable letter, thus delaying the compound's pending market debut. That disclosure caused the company's shares to lose more than half their value in a day and close at $1.09 at the end of the session. (See BioWorld Today, Oct. 18, 2004.)

A bit of bright news eventually followed, as early this year La Jolla Pharmaceutical raised $15.8 million in net proceeds from a public offering of more than 12 million shares of its common stock. But shortly after, the FDA denied the company's request for accelerated approval of Riquent, and the firm soon laid off a third of its staff, about 60 employees. (See BioWorld Today, Jan. 31, 2005, and March 31, 2005.)

Concurrent with the layoffs was a stoppage in the randomized, double-blinded Riquent study, which originally began late last year as a Phase IV trial before the accelerated approval rejection.

"To conserve cash, we halted enrollment," Wiseman explained, adding that only about 25 to 30 patients had been recruited at that time. "Now our goal is to vigorously reactivate enrollment."

The study is designed to include about 500 patients, and it will recruit them in the U.S., Europe, Asia and India. It will take about a year to complete enrollment, followed by another year for the evaluation to complete.

Wiseman noted that the lupus market represents "a huge unmet medical need," with no new therapies in 40 years. The company's partnering talks continue, he added, as potential collaborators eye Riquent as an entry into that market.

Clearly, La Jolla Pharmaceutical's latest investment syndicate has the same feelings. The definitive agreement calls for the company to issue 88 million new common shares and warrants for another 22 million shares. The warrants to be issued upon closing will be immediately exercisable at $1 apiece and will remain exercisable for five years. The deal is expected to close in December, though it remains contingent upon stockholder approval, continued listing on either the Nasdaq National Market or the Nasdaq Capital Market and other customary conditions.

Wiseman said market conditions dictated the per-share pricing, which he called "favorable." The company had about 74 million shares outstanding before the deal. Wiseman added that the accompanying warrant coverage was "pretty typical" for these types of private investments.

In addition to those warrants, the investors also are entitled to receive additional but conditional warrants to purchase an amount of common stock equal to an aggregate of 5 percent of the company's outstanding shares as of Oct. 6. Upon closing, the additional warrants, if issued, will become void and of no effect. However, they will become exercisable if La Jolla Pharmaceutical completes a different financing transaction other than this one, the company's stockholders do not sign off, it does not close before Dec. 30 or certain other extraordinary transactions occur.

In connection with seeking stockholder approval of the financing, the company also will request approval to increase its number of authorized common shares and to amend its current equity incentive plan to increase the number of shares available for grant under the plan, as well as for a reverse stock split in the range of 1-for-2 to 1-for-5. An exact ratio will be determined by the company's board prior to filing a proxy statement for the special stockholder meeting.

New investors coming into La Jolla Pharmaceutical as a result of the financing include Essex Woodlands Health Ventures Fund VI LP in The Woodlands, Texas; Frazier Healthcare Ventures in Seattle; and Sutter Hill Ventures in Palo Alto, Calif. Existing shareholders who backed the transaction include Special Situations Funds in New York and Domain Public Equity Partners LP in Princeton, N.J., as well as Alejandro Gonzalez, already the company's largest single stockholder. Pacific Growth Equities LLC in San Francisco served as La Jolla Pharmaceutical's financial adviser in connection with the transaction.

On Friday, its shares (NASDAQ:LJPC) gained 6 cents, or 8 percent, to close at 80 cents.