BioWorld International Correspondent

Faced with a looming cash crisis, Pharmexa A/S priced a long-expected rights issue.

The Hørsholm, Denmark-based immunotherapy firm said it would offer shareholders up to about 12.3 million new shares at DKK17 per share, almost 50 percent below Monday's closing share price of DKK31.70.

"There is a lot of carrot and stick here, if you will," CEO Jakob Schmidt told BioWorld International. "This is a deal that needs to be done, and I don't think there's any reason to hide that from our shareholders."

Shareholders of record on April 30 will be entitled to purchase three new shares for every share they hold. The transaction could gross up to DKK209 million (US$33.4 million) in total, but will not proceed if it falls below a threshold of DKK100 million. The subscription period runs from May 3 through May 17, while trading in subscription rights will be permitted from April 28 through May 12.

Pharmexa began the year with about DKK50 million in cash and equivalents, enough to fund its operations until the end of August. Its auditors had entered a "going concern" qualification in its accounts for 2003. However, the company has not been contemplating a trade sale.

"We haven't been into any negotiations with anybody about that," Schmidt said. "If we are not going to be able to close this rights issue, then we are going to be very, very busy."

If that kind of scenario were to arise, he said, the company's listing on the Copenhagen Stock Exchange would be a valuable asset.

"If it came to that I do think that we would be able to find a solution, but I don't think that is likely to happen," he said. For one thing, ING Investment Banking, joint lead manager in the transaction, has underwritten the subscription to about 2.9 million new shares, contingent upon a minimum of about 3 million additional new shares being taken up.

"On top of that, we have the option agreement with Lundbeck, which we can call in," Schmidt said. In January, H. Lundbeck A/S, of Copenhagen, said it would invest up to DKK10 million in any future financing transaction. In addition, the Swedish venture capital fund HealthCap, which currently holds around 3 percent of Pharmexa's stock, has indicated that it would participate also, albeit without specifying an amount.

Pharmexa plans to use proceeds to finance a Phase II trial of its lead program, HER-2 Protein Autovac, in the second half of the year. The product is designed to elicit a polyclonal antibody response to the HER-2 antigen that occurs in a subset of breast cancer patients.

"I don't think the deal situation is going to change drastically in the next couple of years," Schmidt said. Big pharma has been slow to embrace immunotherapy as a new treatment modality, he said, adding that they are "waiting for the first products to reach the market."