By Frances Bishopp

Expecting its anti-CD20 monoclonal antibody, Rituxan, for non-Hodgkin's lymphoma to be approved by the FDA, IDEC Pharmaceuticals Corp. said it will purchase and sell call options of its own stock in a private transaction that potentially could bring IDEC up to $45 million, with no net expense to the company.

If the call option sold by IDEC (up to 900,000 shares) is exercised, the company could receive cash totaling $48 to $50 per share when combined with funds from the call option purchased by IDEC (up to 600,000 shares). IDEC's stock (NASDAQ:IDPH) closed Friday at $30.75, unchanged.

There are two steps to the transaction, Phil Schneider, chief financial officer with IDEC, explained to BioWorld Today. "We buy a call and sell a call, but, when all is said and done, there is no net cost to IDEC," Schneider said.

The purchased call option will give IDEC, of San Diego, the right, but not an obligation, to buy from an unnamed financial institution up to 600,000 shares of IDEC common stock at a strike price estimated to be 10 percent to 17 percent above the market price of the stock upon entering the transaction, Schneider said.

Rather than purchasing these shares, the company expects to elect cash settlement, which would be determined by the difference between the price of the stock (if above the strike price at option expiration) and the option strike price.

This first call option is capped, limiting the amount of cash the company could receive. Should the price of the stock close at expiration below the strike price of the first option, the company would not receive or expend any cash. "The reason we cap it is because the call then is less expensive for us," Schneider said.

"Twelve months from now if the stock is at $45 a share, we get the difference between that price and the first call option price," Schneider said. "We would not buy the stock, we would just probably elect a cash settlement."

The second call option, to be sold by IDEC, will entitle the financial institution to purchase from IDEC up to 900,000 shares of newly issued common stock at a specified strike price estimated to be 53 percent to 60 percent above the market price of the stock upon entering the transaction.

The sale of the second option will fully fund the purchase of the first, resulting in no net expense for IDEC. The transaction for IDEC, Schneider pointed out, is a capital transaction. "It is not income, and it is not a taxable event," he said.

Should the second call option be exercised, the company expects to deliver to the financial institution up to 900,000 shares.

Should the price of IDEC common stock close at expiration above the strike price of the second option, the financial institution would get the shares at a discount to the market price. Such a discount would be offset to some extent by the proceeds paid to the company from cash settlement of the first option.

Stock Drop Would Negate Deal

Should the price of IDEC common stock close at expiration below the strike price of the second option, the company would neither deliver shares nor receive or expend any cash to settle this option.

Both call options are exercisable only at expiration, which will be on the same date approximately 12 to 15 months from closing the transaction.

By combining these transactions, Schneider said, if the stock were to go above that upper strike price, IDEC would get the cash from doing the stock offering, plus the cash from settling the first call. "When you combine those two together, essentially you're doing an offering at an even higher price," he said.

This type of financing eliminates the road show, a 6 percent underwriting discount and the hit the stock price takes following announcement of an offering, Schneider said. "We feel this could be a win-win for everybody," he added.

Last week, IDEC received a biologic license application six-month end-of-cycle review letter from the FDA for Rituxan, requesting submission of additional data on certain aspects of the bulk manufacture of the drug.

IDEC said the proposed timeline of the product would not be affected by the FDA's request, particularly since no additional clinical trials would be necessary.

IDEC's cash on hand, Schneider said, is approximately $65 million. *