By Charles Craig

With biotechnology stocks sinking, two Seattle-based firms, PathoGenesis Corp. and Cell Therapeutics Inc., still managed to complete public offerings Friday for nearly $90 million in gross proceeds.

Cell Therapeutics' equity sale of 3 million shares marked its debut in the capital markets. The initial public offering (IPO) was priced lower than expected, at $10 per share, for gross proceeds of $30 million. The company had anticipated a price range of $14 to $16.

The IPO, proposed in early February, was the second attempt by Cell Therapeutics to take the firm public. In September 1996, it withdrew an offering because of poor market conditions.

Since then Cell Therapeutics negotiated a corporate collaboration for its lead product, lisofylline, with Johnson & Johnson, of New Brunswick, N.J. The drug is being developed as a chemotherapy adjunct and anti-inflammatory agent.

As part of the December 1996 deal, Johnson & Johnson agreed to buy 300,000 Cell Therapeutics shares at the IPO price. The investment boosted Cell Therapeutics' offering to $33 million.

In registering for its follow-on offering in February, PathoGenesis took advantage of late-stage clinical trial success with its lead product, TOBI, an inhaled form of the antibiotic tobramycin. The company expects to submit a new drug application with the FDA during the second quarter of this year. TOBI is targeted for treatment of chronic lung infections in cystic fibrosis patients.

Results from two successful Phase III trials of TOBI were reported by PathoGenesis in late January. The studies showed the treatment achieved statistical significance versus a placebo for improving lung function and reducing cystic fibrosis patients' hospital stays.

Tobramycin currently is administered intraveneously. Converting the antibiotic to an inhaled form allows for use of higher concentrations of the infection-fighting agent and provides easier administration.

When Cell Therapeutics and PathoGenesis registered for their public offerings, biotechnology stocks were in an upswing. The NASDAQ Biotech Index, which includes 114 stocks, began 1997 at 303.31 and by Feb. 21 had surged 14 percent to 347.03.

In the last week, however, the sector has reversed its course. The NASDAQ index went from 345.28 on March 10 to 310.32 nine days later, a 10 percent drop. It ended Thursday at 313.47.

PathoGenesis' stock (NASDAQ:PGNS) closed at $29.75 Feb. 27, the day it filed for the sale of 2 million shares. The $27 price of the offering represented a 9.5 percent dip, but the company sold another 100,000 shares, boosting the equity financing to 2.1 million shares for gross proceeds of $56.7 million.

PathoGenesis ended Friday at $26.50, down $0.50.

Underwriters for the offering were Montgomery Securities, Prudential Securities Inc., and Hambrecht & Quist LLC, all of New York. They have options to purchase another 315,000 shares to cover overallotments.

PathoGenesis intends to market TOBI in the U.S. and Europe. Some funds raised in the offering will be used to assemble a marketing and sales team.

TOBI May Have Other Uses

In addition to development of TOBI as a cystic fibrosis treatment, PathoGenesis is targeting the drug for tuberculosis and bronchiectasis, a bacterial infection leading to inflammation and damage to lungs.

The company also has another drug in clinical trials for tuberculosis. PA-1648 is a derivative of the antibiotic rifampin, which is one of four drugs currently used to treat the disease. The other three are isoniazid, ethambutol and pyrazinamide.

As of Dec. 31, 1996, PathoGenesis had $60.7 million in cash and reported a net loss of $21.3 million for the year. Following the offering the company has about $16.1 million shares outstanding.

Cell Therapeutics ended 1996 with $31.2 million in cash and reported a net loss of $13.9 million. Following the offering, the company has 13 million shares outstanding.

Lisofylline modulates selective stress-activated cell signaling pathways that respond to chemotherapy, radiation and trauma. The drug is designed to inhibit phosphatidic acid and reduce oxidative damage to tissues.

Lisofylline is in Phase III trials to reduce side effects associated with high-dose chemotherapy and radiation treatments. It also is in early-stage clinical trials to combat inflammation in trauma patients.

Cell Therapeutics (NASDAQ:CTIC) closed Friday at $10.25.

Underwriters for the IPO were UBS Securities LLC, of New York, Montgomery Securities, of San Francisco, and Raymond James & Associates, of St. Petersburg, Fla. *