By Lisa Seachrist

Washington Editor

Human Genome Sciences Inc. raised $100 million in a private placement of 5.5 percent convertible subordinated notes.

The financing will be used to advance the Rockville, Md.-based company's three clinical products, as well as move yet-to-be determined preclinical products to the clinical stage and fund other programs.

"With the programs that we are developing, we decided that we could be more aggressive in pursuing our corporate goals if we had more cash available," Steve Mayer, senior vice president and chief financial officer at Human Genome Sciences (HGS).

HGS, in fact, reported an enviable position at the end of the first quarter of 1999, with $176 million in cash and cash equivalents. The company decided a debt instrument was the best way to increase its cash position.

"We really view it as an equity financing," Mayer said. "We are constantly evaluating the markets and decided that at this time a convertible note is more attractive than other options. In a registered equity offering, from initial filing of the offering with the SEC to completion can be quite a long time, during which you are exposed to a lot of market fluctuations."

In contrast to the lengthy delays that can come with a registered public offering, HGS sold $100 million principal amount of the convertible notes overnight to private investors. The notes are convertible at $52.20 per share and come with a 5.5 percent annual coupon. The notes are due 2006.

HGS' stock (NASDAQ:HGSI) closed Tuesday at $41.5625 a share, down $3.562.

HGS has the right to call the notes after three years and the note holders may convert the notes at any time. Mayer pointed out that early conversion was unlikely because note holders were guaranteed a 5.5 percent annual return on their investment for three years. Upon conversion the notes will represent about 1.9 million shares of HGS common stock. At the end of the first quarter, HGS had nearly 22.9 million shares outstanding.

HGS intends to use that cash to expand its clinical trial program. The company currently has three products in clinical development: myeloid progenitor inhibitory factor-1 (MPIF-1) in Phase II; keratinocyte growth factor-2 (KGF-2) in Phase II; and gene therapy using vascular endothelial growth factor-2 (VEGF-2), which is in Phase I/II. Mayer said results from these trials are expected sometime next year.

MPIF-1 is a chemoprotectant that shields hematopoietic progenitor cells in the bone marrow from the effects of several chemotherapeutic agents used to treat major cancers. These agents work by killing both normal and cancerous cells that rapidly grow. It is a member of the beta chemokine family. (See BioWorld Today, Nov. 19, 1998, p. 1.)

KGF-2 is a growth factor that stimulates the epithelial tissue in the skin, gastrointestinal tract and lining of the mouth and lungs. The company is testing the drug as a wound- healing agent. VEGF-2 is a protein that encourages blood vessel formation. In collaboration with Vascular Genetics Inc., of Research Triangle Park, N.C., HGS is testing a gene therapy approach to reestablish blood flow in ischemic limbs. (See BioWorld Today Aug. 27, 1998, p. 1; and Nov. 11, 1997 p. 1.)

In addition to the clinical products, the company intends to use the funds to move forward one of the 14,000 gene products it has identified from preclinical research. Citing the vagaries of scientific research, Mayer said the company hasn't decided which will be the next product to move into the clinic.

Mayer said the company will be expanding its functional genomics program as well as establishing a program to develop therapeutic antibodies.