By Mary Welch

Despite calling off plans for an initial public offering (IPO) in April, Cell Pathways Inc. raised $18 million through private financing and expects to secure another $4 million from current shareholders exercising their rights of first refusal for the purchase of additional shares.

When the cut-off date of May 20 is reached, Cell Pathways should be valued at $90 million, up from its current value of $66.7 million.

"It's great news. We're quite pleased, especially since we pulled our IPO offering," said Robert Towarnicki, president and CEO.

The Horsham, Pa.-based company disclosed in October 1997 it was offering 2.5 million shares with a proposed price range of $11 to $13 per share, meaning the company expected to raise between $27.5 million and $32.5 million. (See BioWorld Today, Oct. 13, 1997, p. 1)

Cell Pathways raised $17 million in a private placement in June 1997.

However, a week before the "road show" — when the company talks to investors — the Asian markets took a dive and other IPOs didn't seem to do as well as anticipated.

"We watched the market and waited, but at the same time, we continued developing our programs at full clip. We reached April and didn't see a public market that we felt comfortable being in," said Towarnicki.

By waiting and not cutting back operations, the company's cash resources had fallen to about four months' worth. "And that is insufficient to go into the public market anyway, so we opted for a private placement and hoped to raise $20 million," Towarnicki added.

Demand Hit $45M, But Offering Capped at $18M

The response from private investors was overwhelming, creating an initial demand of $45 million. "We decided to cut it off at $18 million," he said, adding, "It made me wonder why in the world we didn't go for the IPO — to tell you the truth."

Participants in the financing included the company's existing qualified institutional investors and new ones, such as Canaan Partners, of Rowayton, Conn.; CEO Ventures, of Pittsburgh; PEC Israel Economic Corp., of New York; Susquehanna Financial Group, of Philadelphia; and Discount Bank and Trust Co., of New York.

Existing investors opting for more shares included New York Life, Goldman Saks Partners Fund, Gem Capital Management, all of New York, and Jackson Boulevard Partners, of Chicago.

Current investors who did not meet the Security and Exchange Commission's definition of a qualified institutional buyer (firms with more than $100 million in their investment portfolios) were given the opportunity to purchase more shares after the initial $18 million self-imposed cap was reached. When the buying spree closes May 20, the company hopes to issue 5.1 million new shares at $4.75 per share.

A total of 18.75 million shares then will be outstanding, giving the company a new market valuation price of $90 million, up from $66.7 million.

"I think we found the response we did because we are showing human data in one study and are conducting animal studies in a multitude of others," Towarnicki said. "We have clinical trials going on in four others. We have an aggressive clinical program that the investors seem to be embracing. I think people are starting to get interested in biotech [stocks] again.

"And we closed the $18 million before the EntreMed situation," he added, referring to a surge in the Rockville, Md., company's stock following news reports earlier this month about its cancer drug research. (See BioWorld Today, May 4, 1998, p. 1.)

Cell Pathways will use the money to fund clinical trials of FGN-1 exisulind, which are currently ongoing in five cancer and precancer indications, as well as to continue preclinical development of second-generation compounds. The company expects to file an investigational new drug application with FDA this year to begin clinical trials with one of the second-generation drug candidates.

The company anticipates a market introduction in late 1999 for FGN-1, its lead compound, for treatment of familial adenomatous polyposis (FAP), an inherited condition in which patients rapidly grow large numbers of precancerous colonic polyps and face a high risk of colon cancer. FAP is also known as adenomatous polyposis coli.

FGN-1 is designed to selectively inhibit the growth of precancerous cells by initiating apoptosis, or programmed cell death, in the abnormal cells without affecting nearby healthy ones. The compound appears to work in a significant number of clinically important cell lines, including colon, cervical, prostate, skin, lung and breast, without inducing resistance in those cells. It is given orally.

FGN-1 entered a pivotal Phase III trial for the treatment of FAP in the second quarter of 1997. Cell Pathways reported positive data from a Phase II study in May 1997 and is expected to release additional encouraging data May 20 from an extension of that trial.

In December 1997, Cell Pathways started Phase II/III trials of FGN-1 for treatment of sporadic adenomatous colonic polyps and for prevention of prostate cancer recurrence. There are few differences between sporadic adenomatous colonic polyps (which affects 30 percent of the U.S. population) and FAP, except that the former is not hereditary and the number of polyps is not as numerous.

A Phase II/III trial of FGN-1 for the prevention of breast cancer recurrence started in February. Two more Phase II trials in precancerous indications should begin this year. *