By Brady Huggett

DepoMed Inc. raised $12.3 million for its Gastric Retention System clinical trials through the private sale of both shares and warrants.

The Menlo Park, Calif.-based company sold about 2.9 million shares and approximately 1.5 million warrants in the financing, which was led by Easton Hunt Capital Partners LP and OrbiMed Advisors LLC, both of New York. Other investors included New York-based S Squared Technology Corp. and Special Situations Funds. Fahnestock & Co. Inc., also of New York, acted as placement agent.

The purchase price was about $4.23 per share and based on a 10-day trailing average. The five-year warrants are exercisable at a ¿premium to market,¿ said John Hamilton, vice president and chief financial officer at DepoMed.

DepoMed¿s stock (AMEX:DMI) rose 46 cents Thursday, or about 7 percent, to close at $5.20.

Hamilton said the funds will go straight to the clinic.

¿We¿ll continue advancing our clinical trials program with [once-daily] Metformin GR as well as the once-daily Ciprofloxacin GR product,¿ Hamilton said, ¿in addition to other undisclosed product development activities.¿

The Metformin GR product for Type II diabetes is expected to begin a Phase III trial at the end of the month, Hamilton said. A Phase II trial of Ciprofloxacin is expected to start in the third quarter.

The $12.3 million should last DepoMed at least one year, Hamilton said, and the sale of the 2.9 million common shares puts the company at 11.5 million shares outstanding. DepoMed had $4.6 million in cash and equivalents at the end of the first quarter.

DepoMed¿s Gastric Retention System is a drug delivery technology designed for drugs preferentially absorbed high in the gastrointestinal tract. Hamilton told BioWorld Today how it works.

¿Your stomach, when you eat a meal, is like a strainer; its job is to break down food particles to a small enough size so when they leave the stomach they can be absorbed,¿ he said. ¿Our product takes on water and triples in size. The pylorus at the bottom of the stomach will not let it exit, so it stays in the stomach and the drug, in solution, exits the stomach. This way it delivers the drug to the upper small intestine for four to six hours, or longer.¿ Eventually, the product dissolves to a watery gel that is excreted normally and flushed away.

DepoMed has a cardiovascular product that is expected to enter Phase I trials later this year, Hamilton said. In January, it signed with an undisclosed pharmaceutical company to do a feasibility study for a controlled-release product. Also, DepoMed is in a collaboration with AVI BioPharma Inc., of Portland, Ore., concerning the oral bioavailability for one of AVI¿s antisense compounds and it has a product for an undisclosed indication in Phase I development with Elan Corp. plc, of Dublin, Ireland.

With the financing, DepoMed forges ahead with its GR System, Hamilton said.

¿It¿s a system that takes advantage of normal GI physiology and keeps the drug upstream of absorption sites,¿ he said. ¿If you look at the pipeline this year compared to a year ago, things have moved along nicely.¿

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