By Randall Osborne

On the strength of its drug for AIDS-related diarrhea, Shaman Pharmaceuticals Inc. filed to raise $16 million through a new financing instrument devised by the company: royalty-based stocks.

Shaman, of South San Francisco, intends to sell 160,000 shares of convertible preferred stock that entitles holders to a $10-per-year dividend, payable semi-annually in common stock, or a pro rata share of an 8 percent royalty in cash on net sales of the diarrhea drug Provir, which the company has decided to market on its own in the U.S.

"[Investors] get the higher amount of the two," said Lisa Conte, Shaman's president and CEO. "It's a separate security from our common stock, and the goal is to focus on the near-term product at hand. We're hoping to be paying out lots of money."

Even so, she said, the arrangement is smarter for the company than out-licensing to another company.

"Why should [the money] go to the big guys for commercialization?" Conte said. "If we hit our timing and sales projection, the goal is to get three to four times the investors' money back in their hands at the end of four years," she added.

Shaman's stock (NASDAQ:SHMN) closed Wednesday at $3.875, down $0.125.

An oral compound, Provir is derived from an extract of the croton plant, found in Latin America. Rather than attacking infectious microbes or inhibiting gastrointestinal activity, the drug targets the underlying cellular mechanism for diarrhea by blocking chloride secretion.

The company is finishing Phase III study of Provir. Last fall, Shaman reported positive data from a Phase II trial. (See BioWorld Today, Oct. 31, 1997, p. 1.)

"We'll have results [from the final trial] by the end of the year," Conte said, and the company plans to file a new drug application (NDA) for Provir with the FDA in the first quarter of next year.

Shaman expects to launch the drug, for which the agency has granted fast-track designation, in July 1999.

The company has two other products in development: nikkomycin Z, an oral antifungal for treatment of systemic fungal infections; and SP-134101, an oral product for the treatment of Type II diabetes.

Shaman's collaborator in the diabetes research program is Lipha SA, a wholly owned subsidiary of Merck KGaA, of Darmstadt, Germany. *