By Jim Shrine

NeoTherapeutics Inc. registered to sell 3.5 million shares in a public offering that would be expected to raise up to $50 million and be used primarily to fund development of Neotrofin, its lead drug for Alzheimer's disease.

The Irvine, Calif., company anticipates the offering will occur in late July. Joseph Charles & Associates Inc., of Boca Raton, Fla., is the managing underwriter and has an option on 525,000 shares to cover overallotments.

NeoTherapeutics' stock (NASDAQ:NEOT) closed Friday at $12.562, down 75 cents per share. At that price, and assuming the overallotment option is exercised, the offering would gross $50.6 million.

"There's been tremendous demand," said Alvin Glasky, the company's chairman, president and CEO, whose ownership position would be reduced to about 22 percent. "This has been in the works for at least three months."

NeoTherapeutics has completed three private financing deals in the past year totaling about $25 million. One was a $15 million equity line, on which it has drawn $5 million. A second was the sale of $6 million in preferred stock, from which the company has taken only $4 million. And finally, NeoTherapeutics last month completed a $4 million private placement that included 400,000 shares of common stock and warrants to purchase another 80,000 shares.

Glasky said that success in the marketplace, along with other factors, led NeoTherapeutics to a public offering rather than the private financing route taken by so many similarly positioned companies. One advantage for NeoTherapeutics is that it has only 6.3 million shares outstanding.

"We felt we could issue more stock without having our current shareholders in an overly diluted position," Glasky said. "That was a currency we had available. Secondly, our stock performance has been extremely good. Our feeling was the market has been very receptive to our securities. Thirdly, our float has been very small. When we did our IPO [initial public offering] in September 1996 we deliberately looked to put our stock in secure hands. There's been very little stock trading since then."

Glasky said the daily volume has averaged about 40,000 to 50,000 shares over the past two years, and increasing the number of shares in the float would provide the stock additional security.

NeoTherapeutics also is fresh off presentation last week of results from a double-blind, placebo-controlled, 75-patient Phase IIa study of Neotrofin in patients with Alzheimer's disease. One of three doses or placebo was given to patients for 28 days of treatment, then patients were evaluated 28 days later to assess longer-term effects.

Glasky said the company downplayed the results when first available in January since the intent was to release them at the annual meeting of the New Clinical Drug Evaluation Unit in Boca Raton. An important point is, Glasky said, it was the first time NeoTherapeutics used the FDA-required tests for showing efficacy in Alzheimer's disease: ADAS-cog, a measure of cognitive functioning, and CIBIC-plus, a measure of overall disease severity. The results "grossly exceeded expectations," he said.

Total ADAS-cog scores improved in 72 percent of patients taking the 150 mg dose, the company said, and the CIBIC-plus "demonstrated a marked improvement in the drug-treated group." Positive effects were seen 28 days after dosing was stopped.

Glasky said patient improvements, as measured by the various tests, were much better with Neotrofin than with the drug now used for the disease and another being considered, both during and after the treatment periods.

A similarly designed Phase IIb study with 400 patients already is under way in Canada, South Africa and Australia. It could be completed by the end of the year, Glasky said.

A U.S. study in 400 patients is expected to begin this fall, he said, and involve only one dose against placebo.

"We don't know whether these can be part of our pivotal studies or not and we have not presented that question to the FDA yet," Glasky said.

As for partnerships, NeoTherapeutics has talked to just about every pharmaceutical company in the world, said Glasky, pointing out that money and technical expertise are not critical needs from a partner now. Marketing will be, but not immediately.

What the company really wants, he said, is a partner that "can run as fast we can. We want someone who can move.

"We want to make sure we keep the program going at an accelerated rate and continue to add value, and keep value, for the shareholders. Adding value for the shareholders is a big thing for me, being the largest shareholder in the company."

NeoTherapeutics had about $3.5 million in cash and equivalents on March 31, as well as about $12 million available through the equity line and preferred stock. It's net loss for the quarter was $4.4 million.