By Frances Bishopp

Connective Therapeutics Inc. has entered into an equity line agreement with a group of investors affiliated with the Palladin Group, of New York, that will provide the company with access to funds of up to $25 million through sales of its common stock.

The equity line agreement, Thomas Wiggans, president and CEO of Connective Therapeutics, of Palo Alto, Calif., told BioWorld Today, will provide an innovative and flexible method of financing and is well suited to the company's business strategy, which is based on short time to market.

This type of financing, Wiggans said, is fairly new to the biotech industry, but is good for companies like Connective Therapeutics. "This equity line agreement will give us additional financial strength," Wiggans said.

The equity line will be available for a three-year period beginning in the fourth quarter of 1997 and, Wiggans said, the decision to draw funds and the time of any drawdown will be at the company's discretion.

The agreement will allow Connective to obtain $500,000 to $2 million at each drawdown through a sale of the company's common stock, subject to minimum price and volume requirements.

Additionally, Connective must sell $500,000 of common stock on a quarterly basis if its stock price exceeds certain levels.

Should Connective draw upon the equity line, shares will be priced at 93 percent of the average trading price of the company's stock over a specified period of time, subject to adjustment, Wiggans said.

As a commitment fee to the investment group, the company has issued a five-year warrant for 250,000 shares of common stock at an exercise price at a premium to the closing price of the company's common stock on the date of the agreement.

"This equity line gives us the flexibility to draw that money by putting stock to those investors at our discretion," Wiggans said. "These investors have made a $25 million commitment over the next three years beginning next December, at the company's option, they will buy stock from us at 7 percent off the market price at the time."

"Subject to certain trading restrictions, we would have to sell to them at least $6 million over the life of the deal," Wiggans said.

"We view this as resources if we need them, when we need them," he said. "The money, should we decide to use it, will be used for completion of our lead product development program and getting the products through the FDA approval process."

"Rather than selling stock now, when the price is lower than we think it should be, we can sell it at our discretion in the future," he said.

Connective Therapeutics currently has two lead products, gamma interferon and betamethasone mousse, which, Wiggans said, have been targeted for market introduction by the end of 1998.

Gamma interferon is a protein involved in the regulation of the immune system. Connective is developing gamma interferon for the treatment of atopic dermatitis and keloids and initiated a Phase III clinical trial of gamma interferon for the treatment of severe atopic dermatitis in September of 1996.

Connective acquired the rights to Betamethasone, a mousse formulation of betamethasone 17-alpha-valerate, a corticosteroid currently marketed in the U.S., from Soltec Research Ltd., of Australia, in June of 1996.

Once again, with the objective of establishing early commercialization, Connective developed a U.S. registration strategy and will begin Phase III trials for scalp psoriasis the first quarter of 1997.

Connective also has Ridaura, which was purchased from SmithKline Beecham, of Philadelphia, early in December. Ridaura, an oral formulation of gold salt classified as a disease-modifying antirheumatic drug, has been shown to slow the progression of rheumatoid arthritis and is believed to slow down joint destruction. It has been on the market for approximately 10 years.

In December, Connective raised $8 million in a self-managed financing, through the sale of its common stock to institutional investors and $2 million of Series A convertible preferred shares to an offshore investor.

Investors in the common stock offering included New York Life Insurance Co., Weiss Peck & Greer Lifesciences Funds and Integral Capital Partners and an existing investor, GIMV n.v.

Connective Therapeutics' stock (NASDAQ:CNCT) closed Friday at $7, down $0.50. *