Genome Therapeutics Corp. closed a sale of convertible debentures to two institutional investors, raising gross proceeds of $15 million to cover expenses for its Phase III trial of ramoplanin.
“I think it’s probably prudent cash management,” Steven Rauscher, CEO and president of Genome Therapeutics, told BioWorld Today, adding that the company “didn’t want to raise too much money.”
Genome Therapeutics, of Waltham, Mass., will spend between $15 million and $20 million to support the Phase III trial this year, he said.
The debentures can be converted into shares of stock at the holder’s option at $8 per share, roughly a 50 percent premium from the closing price of $5.40 on March 1.
“These things are a topic of negotiation,” Rauscher said, explaining the $8 share price. “We felt that our stock was underappreciated in the current environment, and we wanted a vehicle that reflected that, so that’s why we chose a convertible note at a premium.”
Genome Therapeutics’ stock (NASDAQ:GENE) rose 16 cents Wednesday to close at $5.72.
The maturity date of the debentures is Dec. 31, 2004, with interest accruing at 6 percent annually. In addition, investors received warrants to purchase up to 487,500 shares of stock, also at $8 per share. The warrants become exercisable only if the debentures are converted or if certain other redemptions or repayments of the debentures occur. Ladenburg Thalmann & Co. Inc., of New York, acted as the placement agent for the transaction.
The company has about $80 million in cash, Rauscher said. For the quarter ended Sept. 29, the company had a burn rate of about $4.2 million, and its weighted average number of outstanding shares on a fully diluted basis was 22.7 million.
Genome Therapeutics has ramoplanin in Phase III trials for the prevention of bloodstream infections caused by vancomycin-resistant enterococci. The company purchased the U.S. and Canadian rights to the glycolipodepsipeptide antibiotic from Biosearch Italia SpA in October for an initial payment of $2 million and up to an additional $8 million in cash and notes convertible into its stock. Genome Therapeutics plans to market the drug itself by hiring a sales force. (See BioWorld Today, Oct. 10, 2001.)
Rauscher said the company is about one-third of the way through the ramoplanin trials and is on track for a new drug application filing in 2004. Rauscher said the drug shows promise in other indications, and therefore, within the next 12 to 18 months, Genome Therapeutics plans to initiate Phase III trials in additional patient populations or other indications. And the company is seeking another product.
“One of the milestones that we expect to achieve over the next 12 to 18 months is to license in a second product in bacterial and fungal infections,” Rauscher said. “That very closely fits our drug discovery capabilities.”
Genome Therapeutics has several notable pharmaceutical collaborations, including agreements with Wyeth-Ayerst Laboratories, a division of American Home Products Corp., of Madison, N.J.; Aventis Pharma SA, of Frankfurt, Germany; and Schering-Plough Corp., of Madison, N.J. It also has a joint venture with ArQule Inc., of Waltham, Mass., for drug discovery using ArQule’s Parallel Track Drug Discovery Platform to screen and optimize compounds against Genome Therapeutics targets. The agreement, which replaces the companies’ 1998 collaboration, calls for joint ownership of all lead compounds and commercial outcomes resulting from the collaboration.