By Debbie Strickland

Megabios Corp.'s initial public offering (IPO) raised $30 million for the Burlingame, Calif., company's gene therapy programs, including a cystic fibrosis treatment that entered Phase I/II trials this summer.

The company sold 2.5 million shares of common stock at $12 per share, the mid-point of the $11 to $13 per share Megabios estimated when it first registered the offering with the Securities and Exchange Commission.

Underwriters Montgomery Securities and Hambrecht & Quist, both of San Francisco, have options to purchase an additional 375,000 shares to cover overallotments.

The offering brings the company's total shares outstanding to 12.23 million. Its stock (NASDAQ:MBIO) closed Tuesday at $12.375, up $0.375.

Net proceeds, exclusive of overallotments, are $27.3 million, of which $15 million is earmarked for research. Megabios intends to invest $4 million in leasehold improvements and $4 million in capital equipment, primarily for use at a pilot manufacturing facility.

The IPO boosts the five-year-old company's available cash and cash equivalents to approximately $50 million — enough, combined with other sources of revenue, to last through fiscal 1999. Megabios' fiscal year ends June 30. The company's net loss for 1997 was $4.95 million.

Megabios' lead product is the Glaxo Wellcome P.L.C.-partnered cystic fibrosis therapy GR213487B, now in a Phase I/II clinical study. The product uses the Megabios gene delivery system to deliver a healthy cystic fibrosis transmembrane conductance regulator (CFTR) gene to ciliated epithelial cells lining the lungs. A defect in the CFTR gene causes the disease.

The nonviral, in vivo gene-delivery method consists of DNA plasmids containing a therapeutic gene and lipids and other agents that facilitate the delivery of the DNA plasmids into the target cell.

In most of its gene delivery systems, Megabios combines negatively charged DNA with positively charged lipids and neutral lipids to form DNA complexes.

Technology Attracted Three Drug Makers

During the last three years, the company has inked three corporate partnerships with big pharma giants. In addition to Glaxo Wellcome, of London, Megabios is collaborating with Pfizer Inc., of New York, for anti-angiogenic cancer therapy and with Eli Lilly and Co., of Indianapolis, for treatment of breast and ovarian cancer using the BRCA1 gene.

Signed this past spring, the Lilly agreement provided global commercialization rights to a single drug in exchange for an equity investment, research funding for up to four years and milestone payments. The companies did not disclose financial details, nor, at the time their collaboration was announced, the identity of the gene and targets involved.

The Pfizer deal, signed in 1996, was an up-to-$50 million agreement in which Pfizer became an equity stakeholder and codeveloper of intravenous gene therapy cancer treatments that inhibit blood vessel formation.

In June, Megabios completed a $14 million private financing, with the goal of pushing a select number of preclinical programs toward Phase I clinical trials in hopes of preparing data packages that would attract additional corporate partners. *