By Randall Osborne

West Coast Editor

Partly to pay for the ongoing 400-patient Phase III trial of its topical prostaglandin E1 (alprostadil) gel for erectile dysfunction, MacroChem Corp. raised $9 million in a private placement with a pair of institutional investors and won a commitment from them for potentially $7 million more.

The investors said they would invest the additional $7 million at MacroChem's option seven months after the registration statement, and subject to trading volume and price targets, among other conditions.

Whether the money will be taken down "depends on how we do with licensing," said Ken Rice, vice president and chief financial officer of Lexington, Mass.-based MacroChem.

Five pharmaceutical companies have expressed interest in the gel, called Topiglan, which MacroChem believes will rival oral Viagra (sildenafil citrate), marketed by Pfizer Inc., of New York, Rice said.

"Before the financing, we had $10 million in the bank," Rice said. "Our burn rate comes in two flavors. The fixed burn rate is $5.2 million. Clinical [trial costs] have averaged between $7 million and $8 million annually. It doesn't look like that's going to blow up that much."

A pivotal Phase III trial of Topiglan began in July at 20 sites. The alprostadil is delivered by way of an excipient known as SEPA, which works through the skin to enhance absorption.

"It's an in-home trial," Rice said. "The trials we've done up to now were done in physicians' office with the man alone. In this trial, couples come in together, and use it for three months. We measure success in the last month, after they've had a chance to get used to it."

The gel is administered in a fingertip-size dose to the glans, or head, of the penis.

"We have no real data yet on how quickly the drug works, but we've seen in earlier trials onset of action in 30 to 40 minutes, which is much faster than Viagra," Rice said.

Alprostadil already is used for erectile dysfunction, but must be injected about a half-inch deep into the penis or inserted into the urethra as a suppository. SEPA temporarily neutralizes the absorption-barrier effect of the stratum corneum, which is the outer lipid layer of mammal skin.

An estimated 30 million-plus American men suffer some degree of erectile dysfunction. More than half of these have a vascular form of the disease, which means they may avoid oral drugs, such as Viagra, because of possible systemic side effects.

"If we obtain 5 percent to 10 percent of those patients, we have a billion dollar drug," Rice said. Most of Topiglan is metabolized enzymatically in the penis, he said, and 80 percent of the remainder is metabolized harmlessly in the lungs.

"By the time it gets to the left side of the heart, where it could be dangerous, there's nothing left," Rice said.

Fewer than 6 percent of men with the condition take a drug for erectile dysfunction, according to a study in 1999 by the American Association of Retired Persons. Rice said that is largely because of fear of cardiovascular complications.

"When we went to the FDA with our Phase II trial protocol, the safety profile of SEPA combined with the safety profile already understood with prostaglandin caused the FDA to let us expand the inclusion criteria, [adding] for example, stable angina patients, who would be at high risk for Viagra, so that the trial became a pivotal Phase III," Rice said.

"We know we have to do at least one more, in diabetics," he added, and the company aims to file a new drug application in middle or late 2002.

Proceeds from the financing also will help fund development of EcoNail, a product for fungal infections of the nail, as well as research into others. EcoNail uses SEPA to enhance MacroChem's nail lacquer for delivering antifungal agents through nails and surrounding tissues. About 37 million Americans are afflicted with onychomycosis, a fungal infection of the fingernails or toenails.

Earlier this month, MacroChem signed a deal with Pfizer to investigate using SEPA with Pfizer products. Terms were not disclosed.

In the financing, for which Leerink Swann & Co., of Boston, acted as the placement agent, MacroChem sold more than 1.8 million shares, with additional shares issuable to the investors based on the trading price after the registration statement becomes effective.

The investors have rights of first refusal during the period, and also get warrants for the purchase of 363,332 shares at $5.90 per share. MacroChem may call the warrants if the closing price reaches $11.80 for 15 days in a row. The company's stock (NASDAQ:MCHM) closed Thursday at $5.062, down 56 cents.

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