Shaman Pharmaceuticals Inc. has attempted to create some financingstability amid the capital market's cyclical volatility towardbiotechnology stocks with a private placement that could generate atleast $23 million for the South San Francisco company.

Lisa Conte, Shaman's president and CEO, called her creative fundingplan a method not only for avoiding a trip into bear markets to raisemoney, but also for strengthening the company's negotiating positionwith drug makers foraging for technology bargains.

"It's a way to offset the volatility of the capital markets," Conte saidof Shaman's private placement of nearly 2.7 million shares. "Whenthe stock price is low we don't want to do a monster financing."

The private placement, she noted, was put in motion prior to thesummer slump in the markets.

"It also gives us the ability to be tough in negotiations," she added.Pharmaceutical firms in need of drug technology can delay talks formonths hoping for cash-hungry companies will get desperate to cut adeal.

"The big guys can wait you out," Conte said. "Now we're notvulnerable to their timetable. We're in multiple negotiations with ourdiabetes program and we're down to the wire on some points wedon't want to give up."

Shaman uses an ethnobotanical approach to drug discovery,screening extracts from tropical plants traditionally used formedicinal purposes. In its diabetes research, the company hasidentified 10 new compounds for potential treatment of Type IIdiabetes. It already has one collaboration with Ono PharmaceuticalCo. Ltd., of Tokyo, for rights to market a diabetes therapy in Japan,South Korea and Taiwan. Shaman maintains all rights elsewhere.

Shaman's private placement with offshore investors has three partsfor a projected total of at least $23 million. Hambrecht & Quist Inc.,of New York, acted as placement agent.

First, Shaman sold 400,000 shares of convertible preferred stock for$8.15 per share for $3.3 million. The per-share price represented a 33percent premium to Shaman's market price July 25, 1996, when thedeal was negotiated. Each of the 400,000 shares is convertible to acommon share before July 25, 1999, at which time they automaticallyconvert.

For the second part, Shaman can sell the same investors up to 1.2million more shares between January 1997 and July 2000 at apremium to the market price and the investors, in turn, can buy up toan additional 528,000 shares. Using $8.15 per share as the premiumprice, the sale of 1.728 million would raise $14 million.

The third part involves warrants for the purchase of 550,000 shares at$10.18 per share for $5.6 million. The investors can exercise thewarrants during the next 6 years.

Conte said the $3.3 million received upfront from the investor groupgives the company enough funding to avoid heading for the capitalmarkets in the near future.

At the close of the second quarter, June 30, 1996, Shaman said it had$18 million in cash and a net loss of $10 million for the first half ofthe year.

In addition to its diabetes research, the company has two compoundsin clinical development. Virend, derived from the croton plant, is atopical antiviral drug for treatment of herpes. Phase III trials areexpected to start this year.

Provir, an oral formulation of the active ingredient in Virend, is beingevaluated in Phase II studies for secretory diarrhea. n

-- Charles Craig

(c) 1997 American Health Consultants. All rights reserved.