By Randall Osborne
With its AIDS gene therapy in Phase II human clinical testing, Cell Genesys Inc. has raised $20 million in a private placement of convertible preferred stock, an equity financing that brings the company's cash resources to a total of $80 million.
Cell Genesys, of Foster City, Calif., may exercise a put option for up to $10 million more convertible preferred stock, and investors may exercise a call option for up to $10 million more. Both are subject to certain conditions.
Under the terms of the financing agreement, Cell Genesys will issue 2,000 shares of convertible preferred stock with a maturity date of Nov. 14, 2002. After holding periods are satisfied, each of the newly issued Series B shares is convertible into shares of common stock at $11.02 per share or, if lower, the average trading price during the 10 trading days before the conversion. The convertible preferred stock bears a dividend of five percent, payable in kind.
Kathleen Glaub, senior vice president and CFO of Cell Genesys, said the $80 million will "keep us going for a good amount of time, a couple of years."
The structure of the equity financing provides "flexibility for the future" and was quickly accomplished, Glaub said. "We didn't do a road show, so it was economical," she added.
In February, the company reported preliminary data from one of its two Phase II studies of modified T cells used as a therapeutic agent to treat HIV-infected patients. The killer T cells are engineered with proprietary, disease-specific receptors that allow them to selectively destroy the HIV-infected cells. More complete results will be available in the first half of next year, Glaub said.
Cell Genesys' collaborator in the AIDS gene therapy program is Hoechst Marion Roussel, of Frankfurt, Germany.
Recently published scientific papers, pointing to a persistence of viral reservoirs in patients for as long as 30 months after receiving the best drug treatments on the market, have brought a new wave of interest in Cell Genesys' research, Glaub said.
"The drug approach obviously has had a major impact, but, as we're finding out now, it's not a cure," she said. News of the drug's insufficiency was at first not taken too seriously, Glaub noted.
"The AIDS experts thought that perhaps, if the patients stayed on the drugs for another year, that would do it," she said. "Experts in the field now are saying we do, in fact, need another approach."
Cell Genesys' approach may be the one that's needed.
"We've always presented our approach as a good combination with the drugs," Glaub said. "Our therapy goes after the cells that harbor the virus."
The gene therapy strategy might work against more than AIDS, the company hopes. "In September, we started a number of Phase I/II trials in the colon cancer area, one with a similar approach as in the AIDS trials," Glaub said.
The company has also begun human clinical trials of its GVAX cancer vaccine, targeting lung and prostate cancer as well as melanoma. GVAX had been under development by Somatix Therapy Corp., of Alameda, Calif., which Cell Genesys took over in late May. In a deal valued at $115 million, Somatix became a wholly owned subsidiary of Cell Genesys. (See BioWorld Today, Jan. 14, 1997, p. 1.)
Cell Genesys also has a monoclonal antibody program pursued through its subsidiary, Abgenix Inc., of Fremont, Calif. Three antibody products are in development. The most advanced product is ABX-CBL, in Phase II trials for treating steroid-resistant graft vs. host disease, which is a frequent and fatal complication of allogeneic bone marrow transplants.
Advising investors in the private placement was Promethean Investment Group, LLC, of New York, a fund-management firm.
As of Sept. 30, Cell Genesys had $56.8 million in cash, with a net loss of $114.8 million for the first nine months of 1997.
The company's stock (NASDAQ:CEGE) closed Friday at $8.75, down $0.0625. *