Keeping afloat until it expects to begin generating product revenue, Palatin Technologies Inc. closed an $11.5 million offering through the private placement of securities to institutional and accredited investors.

The company, which sold 9.37 million common shares, also issued to its investors a warrant option - for every five shares purchased, investors receive a five-year warrant to purchase one common stock share at a 25 percent premium to the $1.23 per-share purchase price in the offering. The cost per share for the financing represented the average daily closing price for the five trading days preceding the closing date.

Palatin's stock (AMEX:PTN) rose 12 cents to close at $1.82 Wednesday.

But such a private placement is not new to Palatin. In August, the Cranbury, N.J.-based firm concluded an offering of 2.6 million shares that raised gross proceeds of $4.2 million. Its most recent quarterly report spelled out Palatin's need for funds - the company reported cash, cash equivalents and investments of about $5.5 million as of Sept. 30. Net loss for the quarter rose to $4.1 million, up from $2.9 million the corresponding year-prior quarter. The firm attributed the jump to increased clinical spending.

"These are very tough times, and biotech companies are doing refinancings," Palatin President and CEO Carl Spana said to BioWorld Today. "The two fundings are to support us meeting what I believe are two major objectives in a biotechnology company. The first is launching our first product and beginning to transition to a company that will generate revenue from product sales, and the corporate partnering of our first major therapeutic.

"I think if we can meet those two objectives, which I anticipate we will meet in the first half of 2003, I think we will have transformed the company. And we'll continue to grow the company from there."

Spana said the money should carry into the second half of next year for Palatin.

The company plans to apply a portion of the funds to further the approval process for its LeuTech product, a radiolabeled monoclonal antibody for diagnosing infections. Palatin has an agreement with Mallinckrodt Inc., a division of Pembroke, Bermuda-based Tyco Healthcare, to market the infection-imaging agent.

In May, Mallinckrodt committed to cover half of Palatin's estimated expenses associated with the FDA review process, but the funding was contingent on milestones relating to completed development on the part of Palatin. A supplemental biologics license application for the product has not been filed, but it is in progress, the company said. Spana said Palatin has addressed the FDA's concerns over manufacturing and the company expects approval midway through next year for equivocal appendicitis.

Palatin also plans to direct funding toward advancing PT-141, its compound to treat male and female sexual dysfunction. Spana said the company is drawing interest from potential collaborative partners for the non-phosphodiesterase-5 inhibitor.

"This is a multibillion dollar market, and we're looking to generate the data that allows us to enter into a collaboration that reflects the value of what we have there," Spana said. "Not just a small royalty and a small up front, but a substantial payment for it."

He said he hoped to have a partnership for the product in the second quarter of 2003.

Palatin reported at May's American Urological Association meeting in Orlando, Fla., Phase IIa trial data in which PT-141 was shown to be highly significant (p< 0.001) for its primary endpoint, which was measured by duration of erection greater than 60 percent vs. placebo, as well as other endpoints.

Palatin plans to funnel the remainder of the funding into clinical trials for the first product developed from its drug discovery platform - Midas, - studies it expects to begin next year. Midas works to identify lead compounds from protein targets for drugs. The company said that, based on discoveries made by the enabling peptide technology, it is developing therapeutic compounds to treat obesity, sexual dysfunction and inflammation.

"We are in position to probably file an [investigational new drug application] in the first quarter for our next-generation sexual dysfunction product, with the same mechanism but a different chemical entity," Spana said.

Other compounds from the same source include a candidate indicated in both cachexia and obesity. Spana said development would likely focus on longer-term animal research needed to carry a lead compound toward the IND stage.

"When we look at where we are funding-wise, we think we've taken enough money - if we run clean - to get us to some very major milestones," Spana said.

Investors included Perceptive Life Sciences Fund, Albert Fried & Co. LLC and ProMed Partners LP, all of New York; Lombard Odier Darier Hentsch & Co., Anglo Irish Bank and Pictet Fund - Biotech, all of Geneva; Credit Suisse Asset Management and Jean-Phillippe, Francois and Emmanuel Hottinger & Co., both of Zurich; Bern, Switzerland-based Bernische Lehrerversicherungskasse; and London-based Park Place Capital Ltd.

Zurich-based Privateq Advisors AG acted as the placement agent for the European investors.