By Brady Huggett

Inhale Therapeutic Systems Inc. plans to raise $150 million through the private sale of convertible subordinated notes, and use the money for product development and to pursue possible acquisitions.

The notes are convertible into common shares and have a seven-year term, and the conversion price will depend on market conditions at that time. Inhale officials said they could not comment further on particulars of the financing.

Merrill Lynch & Co. and Deutsche Bank Alex.Brown are co-managers for the notes sale, with U.S. Bancorp Piper Jaffray and Lehman Brothers also participating. The underwriters have an option to purchase another $22.5 million in notes to cover overallotments.

Inhale said it will use the proceeds to invest in various product development programs related to its business strategy, to accelerate development of its technologies and to provide resources for potential acquisition and development of complementary technologies, as well as for working capital and other general corporate purposes.

Inhale raised $230 million in February and another $108.5 million in October 1999 through the sale of convertible subordinated debentures with 5 percent and 6.5 percent interest rates, respectively. (See BioWorld Today, Feb. 1, 2000, p. 1.)

Inhale had $309 million in cash and short-term investments on June 30, and currently has 42.2 million shares outstanding. Its stock (NASDAQ:INHL) closed at $44.687 Tuesday, up 43.75 cents.

The company has tested eight different drugs in human clinical trials and has collaborations with several pharmaceutical and biotechnology partners for inhalable products.

"We provide the delivery system, they provide the drug," said Robert Chess, chairman of Inhale. "We make our money through royalties and milestone payments."

Inhale is developing an inhalable insulin formulation with Pfizer Inc., a product in Phase III trials. It also is working with Biogen Inc. on Avonex for multiple sclerosis, Centeon LLC on a a-1 proteinase inhibitor for emphysema, and Eli Lilly and Co. on Forteo for osteoporosis. All those products are in Phase I studies.

Inhale has developed a drug delivery platform that combines innovations in powder technology and inhalation devices for the delivery of inhalable drugs.

Inhale's technology is designed to circumvent the problems associated with oral, transdermal and nasal drug delivery for macromolecules. Large-molecule therapeutics usually cannot pass through the skin or nasal membranes without the use of penetration enhancers. Oral delivery often fails because proteins are digested before hitting the bloodstream. Inhale targets the lungs' ability to absorb molecules into the bloodstream naturally without enhancers and has developed two branches of its technology: drug form and drug delivery.

PulmoSol is Inhale's method of formulating drugs into a stable, effective powder that can be inhaled and absorbed through the lungs. The PulmoSphere powder particle technology (bought from Alliance Pharmaceutical Corp.) expands Inhale's particle engineering capabilities for inhalable peptides and proteins by adding a lipid-based emulsion process, which may offer certain benefits for select molecules. It has developed the delivery inhalers Inhance MDI and Solo to distribute the powders into the lung. (See BioWorld Today, Oct. 6, 1999, p. 1.)

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