By Karen Pihl-Carey

In its fourth round of financing with the same investors, NeoTherapeutics Inc. secured at least $79 million that will carry the company's lead product, Neotrofin, through pivotal trials.

The Irvine, Calif.-based company said the financing consists of $10 million in convertible debentures and the purchase of up to 4 million shares of common stock over a two-year period, which at today's stock price would raise the company another $69 million.

But the beauty of the financing's second component, said NeoTherapeutics' CEO Alvin Glasky, is that it has the potential to raise far more than $69 million.

"We have continuously done the financings at higher valuations," said Glasky, who also is the company's president, chairman and chief scientific officer. "This whole $69 million will not be pulled down at today's price. It's almost like having tomorrow's financing at tomorrow's prices, but having it locked in today."

The company's stock (NASDAQ:NEOT) closed Monday at $17.187, down 75 cents.

With the new financing, the two investor groups eliminated a remaining reset provision in a previous financing announced in November. The company raised $10 million through that financing, which included warrants allowing the investors to purchase shares based on the price of the company's stock at two reset dates, four and six months subsequent to the closing. (See BioWorld Today, Nov. 23, 1999, p. 2.)

The first component of the new financing involves $10 million in 5 percent subordinated convertible debentures due April 6, 2005. They are convertible into common stock at $20.25 per share for the first 90 days after the closing. After that, they are convertible at that same price or 101 percent of the market price of the common stock, whichever is less.

The second component involves the warrants, called the B warrants, to purchase up to 4 million shares of common stock. They can be redeemed by the company as frequently as several times per week and can be exercised by the investors at a 3 percent discount to the closing market price, with a cap of $33.75 per share. The number of B warrants exercisable at each redemption is subject to average daily volume restrictions.

If the company decides not to call the warrants, it has the right to do two more convertible debenture placements of $10 million each, at five and 10 months after the closing of the first one. If the company chooses to do the additional placements, they would be done under similar terms and conditions as the original. If the investors choose to do the placements, they will be done under a fixed conversion price of $20 per share.

The investors also received five-year warrants, called the A warrants, to purchase up to 265,000 shares of common stock, exercisable at $19.672 per share. If exercised, it would raise the company another $5.2 million.

"The investor has the right to exercise that at any time he wants," Glasky told BioWorld Today. "That's sort of the bonus he gets."

Glasky said the company will use the funds to advance Neotrofin, which is in a Phase IIb/III trial for Alzheimer's disease. The company started the trial last month. (See BioWorld Today, March 30, 2000, p. 1.)

He said the funds will carry the product candidate through to registration. The pivotal trials, and other ongoing studies needed for registration, should be completed by the end of 2001. And a new drug application filing could occur any time thereafter, depending on the results, Glasky said.

Proceeds from the financing also will go to the expansion of NeoTherapeutics' functional genomics company, NeoGene Technologies Inc.

"We will be putting some more money into NeoGene Technologies, and I would think within the next six months we will see considerable progress being made in the expansion of that subsidiary," Glasky said.

Funds will help increase the subsidiary's facilities and expand its personnel. NeoGene also is in discussions for potential strategic alliances and corporate partnerships, Glasky said.