A registered direct offering brought in $28 million to Kosan Biosciences Inc., which Wednesday said it obtained commitments from a select group of institutional investors.

The Hayward, Calif.-based company agreed to sell up to about 3.1 million common shares at $9 apiece. The per-share price reflected a slight discount to Tuesday's $9.33 closing bid. The stock (NASDAQ:KOSN) fell 23 cents Wednesday to close at $9.10.

"We wanted to ensure that the company had a good cash position to enable it to continue developing our products, including taking them into the clinic," Michael Ostrach, Kosan's president and chief operating officer, told BioWorld Today. "We felt that since the stock market is quite unpredictable about when there is financing available for biotech companies, we'd take advantage of the opportunity to put some more cash on our balance sheet."

Kosan reported $83.1 million in cash, cash equivalents and marketable securities for the quarterly period ended Sept. 30, at which time it also reported 25.6 million shares outstanding. It lost $6 million in the third quarter.

The added funds will bolster the company's reserves as it pushes forward its internal programs. Its two programs are focused on polyketide-derived compounds, though one is fully funded through a partnership with F. Hoffmann-La Roche Ltd., of Basel, Switzerland.

Kosan's Phase II cancer product, KOS-862 (Epothilone D), is the centerpiece of a global development and commercialization agreement with Roche. The deal could potentially bring Kosan as much as $220 million and Kosan received a little more than $30 million in the form of an up-front payment. The deal was signed in September 2002. Earlier this week, the partners reported plans to begin a Phase II trial evaluating the compound's efficacy as a monotherapy for colorectal, non-small-cell lung and metastatic breast cancers. (See BioWorld Today, Sept. 24, 2002.)

Its other clinical candidate, 17-AAG, is being evaluated in multiple Phase I and Phase Ib studies in collaboration with the National Cancer Institute in Bethesda, Md. The polyketide inhibitor of Hsp90 is designed to interrupt several biological processes implicated in cancer cell growth and survival.

"Although the NCI is sponsoring a very large clinical trial program," Ostrach said, "we would like to supplement that program with additional trials."

He said the recent funding also would support three additional programs that remain in animal testing. The programs include products to treat cancer and infectious diseases, as well as another to develop agents that increase gastrointestinal motility. Should they move into clinical trials, the financing effectively secures sufficient backing for the company to pay for such studies, Ostrach said.

Kosan, which is offering all the shares pursuant to a $75 million registration statement, said it expects the offering to close Dec. 15.

"It's difficult to choose a vehicle, but since we wanted to do this quickly and were raising a relatively small amount," Ostrach said, "we didn't feel we wanted to reach out to a large number of investors and risk that the market price could be impacted by the fact that we were out offering more shares."

Lead placement agent SG Cowen Securities Corp., of New York, was aided by CIBC World Markets Corp., also of New York, and Adams, Harkness & Hill Inc., of Boston. Seaview Securities acted as Kosan's financial adviser.

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