By Jim Shrine


Idec Pharmaceuticals Inc., with its first year of profitability in hand, said it intends to raise $100 million through the sale of 20-year convertible notes.

The San Diego company tried to raise nearly that much in a public offering of 2 million shares a year ago, but pulled the offering because of poor market reception. Idec was just a few months into approval of its monoclonal antibody product, Rituxan. Investors were unsure how well it would do in the marketplace and questioned whether it could lead the company to profitability, said Connie Matsui, Idec's vice president of planning and resource development.

"The majority of those issues have been put to rest over the past year," Matsui told BioWorld Today. "And we're even stronger than we were then, in terms of progress of the products in the pipeline. The feeling is this [financing method], at least in the short term, will result in less dilution, and will provide a way of controlling the cost of the investment a bit more."

The financing involves notes in which interest accrues but is not payable on an ongoing basis, allowing Idec to record the interest as an expense for tax purposes. The notes are convertible into common stock under certain conditions, with some recognition of interest in setting the conversion price. The company would not disclose specific conversion terms of the zero-coupon subordinated notes.

"We felt this type of financing would be the most cost-effective means of raising capital at this time, partly because of the low interest-rate environment, and partly because of the cash-flow benefits," Matsui said. "Also, the equity market as a whole seems to have an appetite for this type of instrument.

"Another reason why this is a good mechanism for us is a reflection of our growth potential," she said. "We are viewed as a growth-opportunity company at this point, and we have the track record and financial standing that gives people more confidence in a long-term instrument like this."

Idec's earnings, disclosed shortly after the notes offering, showed net income of $21.5 million for 1998, as compared to a loss of $15.5 million a year earlier. That was attributable mostly to revenues of $53.8 million from Rituxan, a product approved in November 1997 for treating low-grade non-Hodgkin's lymphoma and marketed with Genentech Inc., of South San Francisco. Rituxan sales last year in the U.S. totaled $152.1 million.

Idec ended the year with about $73.5 million in cash and equivalents. It has about 23.4 million shares out on a fully diluted basis. The stock (NASDAQ:IDPH) lost $3.062 per share Wednesday, closing at $46.812.

Proceeds from the offering will be earmarked for finishing development and then commercializing the company's second product, IDEC-Y2B8, as well as the acquisition of products, technologies and/or businesses that complement Idec's oncology and autoimmune programs, Matsui said.

IDEC-Y2B8 is a murine monoclonal antibody radiotherapy product used in conjunction with Rituxan - the first monoclonal antibody approved for cancer - for more-aggressive non-Hodgkin's lymphomas. Patient accrual in two pivotal trials will be completed this year, Matsui said, with filing of a biological license application targeted for mid-2000. Idec has all rights to that product.

"Because we have a sales force in place for cancer, we'd like to leverage that," Matsui said, adding that further leverage could come through acquisition of oncology products with near-term opportunities.

Idec licensed the oncology product 9-AC (aminocamptothecin), a small molecule being tested in Phase II studies in eight solid tumor indications. A decision on whether to proceed is expected by the middle of this year, Matsui said.

Autoimmune Program To Follow Oncology Model

The company wants to use the oncology operations as a model for its autoimmune program, though that program is a few years behind.

In the autoimmune field, Idec has two products in early-stage psoriasis trials. One - IDEC-151, which being developed with London-based SmithKline Beecham plc - finished a Phase I/II trial in rheumatoid arthritis before SmithKline decided to end development for that indication. Matsui said it's possible Idec will go forward in rheumatoid arthritis on its own.

"We believe we have the foundation to be profitable on an ongoing basis," Matsui said. "The factors driving Rituxan sales now look very positive," she said, adding that analysts are projecting 1999 sales of more than $200 million. "We want to keep growing through product development and intelligent acquisitions."