By Matthew Willett

Gliatech Inc. entered a financing deal with Paul Capital Royalty Acquisition Fund L.P. that could amount to $30 million, after the relaunch of its gel product for post-surgical scarring.

Cleveland-based Gliatech will receive a $5 million cash infusion up front, and an additional $10 million upon the commercial relaunch of Adcon-L in the U.S. and Europe. The company has an option to draw down another $15 million later, but the option expires one year after the U.S. relaunch.

In return, Gliatech gives Paul Capital, of New York, a 2.5 percent royalty on net sales of Adcon products through 2012 or a guaranteed minimum annual royalty rate of $1.6 million.

Adcon-L was approved in May 1998, for inhibition of post-surgical scarring and adhesions following lumbar surgery. Gliatech voluntarily recalled Adcon-L gel in January in response to a voluntary recall by the supplier of a raw material used in its manufacture, after FDA questions about the recording and reporting of data in a clinical trial surfaced last August. (See BioWorld Today, August 30, 2000.)

Gliatech President Steven Basta called the financing ¿a vote of confidence¿ in the Adcon line¿s potential.

¿One of the key motivators was that with a low stock price for us to do a straight equity-based financing would be highly dilutive,¿ Basta said. ¿This provides the operating cash we need, and minimizes dilution for our shareholders. Strategically, it¿s exactly the right kind of financing. Paul Capital comes in as a strategic partner to support the growth of our Adcon business, which is really the core of the future of the company.¿

The financing comes none too soon for Gliatech. The company will have $13 million in cash and marketable securities after the $5 million infusion. ¿We now have the cash to get through the regulatory process and get relaunched internationally and complete the relaunch in the U.S.

Gliatech announced the completion of an International Standards Organization audit earlier this month. Basta said he anticipates relaunching Adcon-L gel in Europe in June, and added that U.S. relaunch should follow.

¿In the U.S. there are three items we¿re working on, and we¿ve got a timeline to have that data submitted to the FDA in the third quarter,¿ Basta said.

If approved for relaunch Adcon-L and its brethren in the anti-adhesion market could create huge revenues for Gliatech. In only the post-lumbar surgery indication the gel already is approved for more than 460,000 procedures per year in the U.S. and more than 800,000 worldwide.

¿That¿s just for our lumbar spine indication,¿ Basta said. ¿When you think about the solution product for pelvic and abdominal surgeries that¿s currently in a pivotal trial, that targets 2.3 million procedures in the U.S. of pelvic and abdominal surgery. All told, we view the market for anti-adhesion products on the order of $1 billion.¿

Gliatech¿s stock (NASDAQ:GLIA) rose 23 cents Thursday, although news of the financing wasn¿t announced until near market¿s close. Gliatech closed Thursday at $4.38.

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