Washington Editor

Emisphere Technologies Inc., a drug delivery firm, has some added financial benefits after agreeing to a $20 million equity deal and also reworking terms of its debt with Elan Corp plc.

"The most important aspect is that these transactions strengthen our balance sheet," said Elliot Maza, Emisphere's chief financial officer, adding that the revised note terms "clean up a debt overhang that we've had on our books for a while."

To fatten its cash reserves, the Tarrytown, N.Y.-based company entered an agreement in which Kingsbridge Capital Ltd. committed to purchase up to $20 million of Emisphere's common stock over a two-year period. Terms of the commitment call for Emisphere to draw funds from Kingsbridge, at Emisphere's discretion, in amounts up to 3 percent of its market capitalization at the time of the draw. In exchange for each draw, Emisphere will sell newly issued common shares to Kingsbridge. The stock will be priced 8 percent to 12 percent lower than the average trading price during the financing period, with the reduced discount applying if the stock's price is equal to or greater than $8.50.

On Tuesday, the company's shares (NASDAQ:EMIS) gained 16 cents to close at $3.56.

Emisphere, which had $24.3 million in cash, cash equivalents and investments as of Sept. 30, will control the minimum acceptable purchase price of shares issued to Kingsbridge. The right to draw funds will begin after the SEC declares effective a registration statement to be filed by the company.

"We're very bullish on our stock and believe that over the next two years, our stock will move up as we make progress on the clinical side and also clean up the balance sheet," Maza told BioWorld Today. "So this financing vehicle with Kingsbridge gives us two things: No. 1, it gives us a cushion so that we have a source of funds available to us, and No. 2, it allows us to access the market at our choosing, which would be as our stock price increases."

Emisphere is under no obligation to access any of the capital, and it can participate in other debt or equity financings without restriction, provided that such financings do not use any floating or other post-issuance adjustable discount to the stock's market price. Maza said that Emisphere does not have near-term plans to draw down funds from the deal.

Kingsbridge is precluded from short-selling any of the shares during the agreement. In return for the commitment, Emisphere gave Kingsbridge a warrant to purchase 250,000 shares at a premium to the current market price. Emisphere posted a $9.5 million net loss in the quarter ended Sept. 30, at which date it had about 18.4 million shares outstanding.

Regarding the Elan deal, Emisphere entered an agreement to repay its outstanding note to Elan in cash and stock. Terms of the agreement call for Emisphere to pay the Dublin, Ireland-based company a total of $26 million in cash and up to 1.2 million shares in installments through June 30. The note's current accrued value stands at about $44 million.

The debt stems from a 1996 joint venture with Elan to develop oral heparin. In connection with the repurchase of Elan's joint venture interest in 1999, Emisphere issued a zero coupon, $20 million note maturing in July 2006, for $55 million.

"They are getting shares, and Elan decided that they liked the idea of an immediate cash payment plus the upside of shares," Maza said. "That was very attractive to them."

Emisphere's eligen technology has been developed to allow for oral delivery of otherwise injectable drugs. To date, it has been used to enable the oral delivery of proteins, peptides, macromolecules and charged organics. Emisphere and its partners have advanced oral formulations or prototypes of salmon calcitonin, heparin, insulin, parathyroid hormone, human growth hormone and cromolyn sodium into clinical trials.

In advance of the two financial transactions, the company entered eligen licensing deals with Novartis AG, of Geneva, and F. Hoffmann-La Roche Ltd., of Basel, Switzerland. (See BioWorld Today, Nov. 19, 2004, and Dec. 3, 2004.)

"This is the culmination of a year of significant progress," Maza said, "on the clinical development side, partnering side and now also on the financial side."