About a month after signing one of the largest preclinical deals in biotech history, Arena Pharmaceuticals Inc. priced a public offering to raise $45 million.

San Diego-based Arena is offering 7.5 million shares of its common stock at $6 apiece.

"The money is going to be used to advance our preclinical and clinical programs," said Jack Lief, Arena's president and CEO. "It's a very significant offering. We were able to increase the size of the offering because of the huge demand that we have."

The company originally had intended on offering 6 million shares. In addition to development expenses, the funds will cover the costs of discovering new candidates, as well as general corporate purposes.

With $113.3 million in cash, cash equivalents and short-term investments at the end of 2004, Arena was not hard-up for money. But biotech companies need to look to the future, Lief said, and take money when it's available.

"I've always felt that the best time to raise money is when you're not desperate for money," he told BioWorld Today. "We concluded a very, very strong year both with the Merck and J&J collaborations, as well as putting two new drugs into the clinic and advancing our obesity compound into Phase II."

It was a good time, he said, to put the word out about Arena's programs.

"We wanted to get our story out to a broader range of investors, and it was just difficult to do that one-on-one without some sort of a major kind of roadshow," Lief said. "So we were able to meet with about 100 investors during the [roadshow]."

In December, Arena partnered two small molecules in preclinical development for Type II diabetes and other disorders with Ortho-McNeil Pharmaceutical Inc., a unit of New Brunswick, N.J.-based Johnson & Johnson. The potential $612.3 million deal, one of the largest preclinical biotech deals to date, included an up-front payment, royalties, research funding and milestone payments. The money could rise from there if Ortho-McNeil elects to develop more than the two lead molecules. Arena received $22.5 million in up-front and milestone payments from Ortho-McNeil in January. (See BioWorld Today, Dec. 22, 2004.)

The two molecules, internally discovered by Arena, modulate an orphan G protein-coupled receptor (GPCR) called the 19AJ receptor. In preclinical tests, the candidates have shown ability to increase the sensitivity of islet beta cells to increased levels of glucose.

Arena also has a collaboration formed in October 2002 with Whitehouse Station, N.J.-based Merck & Co. Inc. It's focused on three GPCRs to develop therapeutics for atherosclerosis and related disorders. Last fall, Merck expanded the collaboration for three more years, selecting one of Arena's compounds for preclinical development. To date, Arena has received $19.5 million from Merck in up-front and milestone payments and an equity investment, and it is entitled to up to $34 million in additional milestone payments, as well as royalties. For research, Merck is paying Arena $5.7 million each year through October 2007.

At a later stage of development, Arena is focused on two candidates for obesity and insomnia. APD356, a selective 5-HT2C serotonin receptor agonist, recently moved into a four-arm, 400-patient Phase II trial for obesity. And APD125, a selective 5-HT2A receptor antagonist, is in Phase I testing for insomnia.

In animal models, APD356 showed evidence of lowering body fat without affecting lean body mass. Arena believes it will not have the cardiovascular side effects of Madison, N.J.-based Wyeth's fen-phen drug, which was pulled from the market in 1997.

Phase I trials indicated that APD356 was well tolerated and showed no drug effect on heart valves or pulmonary artery pressure. Arena began its Phase II trial in December evaluating 1-mg, 5-mg and 15-mg doses of APD356 compared to placebo. Researchers will evaluate weight loss after once-daily administration for 28 days. Initial results should be available in the second quarter, Lief said.

Arena's insomnia drug, APD125, is designed to compete with marketed drugs that activate the GABA-A receptor in the brain. The Phase I trial began in December and results should be available in mid-2005. If positive, the drug would move into Phase II trials later this year, Lief said.

A large chunk of the offering's proceeds will go toward those two unpartnered programs. Underwriters that participated in the financing include New York-based CIBC World Markets Corp. as the book-running manager, Minneapolis-based Piper Jaffray & Co. as co-lead manager, and New York-based Needham & Co. Inc., San Diego-based Granite Financial Group Inc. and New York-based Morgan Joseph & Co. Inc. as co-managers. They have an overallotment option of about 1.1 million shares.

If exercised in full, the option could bring Arena another $6.75 million in proceeds, based on the $6 per share price. The company's stock (NASDAQ:ARNA) rose 26 cents on Tuesday, to close at $6.27.

With the offering, not including the overallotment option, the company has about 34 million shares outstanding.

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