Genelabs Technologies Inc. sold 6.5 million shares toinstitutional investors in the U.S., Europe and Asia in aprivate placement that raised $20 million and gave thecompany enough financing for more than two years.

Frank Kung, chairman of Redwood City, Calif.-basedGenelabs, said that in the next two years the companyalso hopes to bolster its cash position with improvedrevenues from its diagnostics business, particularly withmarketing of a hepatitis G test. Genelabs' 1994diagnostics sales totaled $11.6 million.

Investors in the private financing paid about $3.10 pershare and received a warrant to purchase a one-half shareat about $1.70, or $3.39 per share. The warrants expireJune 15, 1996. Following the placement, the company hasabout 38.5 million shares outstanding. Genelabs stock(NASDAQ:GNLB) Wednesday dropped 31 cents to$3.94

Kung said funds from the private financing are earmarkedfor four development areas: diagnostics, including thehepatitis G test, which is expected to reach the market intwo years; dehydroepiandrosterone (DHEA), a lupustreatment slated to enter a second Phase III study later thisyear; a joint venture biopharmaceutical business with theTaiwan government; and DNA-binding drugs.

Kung, who was in Taiwan Wednesday closing the jointventure agreement with government officials, saidGenelabs sought the private placement _ rather than tryto cash in on the favorable investment climate in thepublic arena _ to attract Asian investors.

He said the financing gives Genelabs a stronger Asianbase to support the company's operations there.

In July, the Taiwan government invested $12 million inGenelabs' Hsinchu subsidiary, Genelabs BiotechnologyLtd., to develop a biopharmaceutical business targetingthe Asia Pacific markets. Genelabs, which established theTaiwan subsidiary in 1993, agreed to contribute $10million over two years and private Taiwan investors areadding another $12 million to the $34 million jointventure.

Genelabs' diagnostics business got a boost in Marchwhen the company formed a potential $24 millioncollaboration with Chiron Corp., of Emeryville, Calif.,and Ortho Diagnostic Systems Inc., of Raritan, N.J.Ortho is a subsidiary of New Brunswick, N.J.-basedJohnson & Johnson. Genelabs' development of a test forhepatitis G, which is believed to be prevalent in the U.S.,Europe and Japan, was an integral part of the deal.

Another Lupus Study Beginning

The second Phase III clinical study of DHEA for systemiclupus erythematosus is expected to get under way in thefourth quarter of this year. The disease consists of a groupof connective tissue disorders that primarily strikeswomen ages 20 to 40.

The first Phase III trial should reach its full enrollment of200 patients by the end of the year, Kung said, and willbe completed in the following seven months.

DHEA, a naturally occurring hormone produced by theadrenal glands, is found in abnormally low levels in lupuspatients. The drug is being tested as a means of reducingpatients' reliance on prednisone, a corticosteroid that canhave serious side effects.

In the area of DNA-binding drugs, Kung said the privatefinancing will be used to accelerate discovery ofcompounds aimed at blocking disease-causing geneexpression.

Although Genelabs recorded its first profit in the secondquarter of this year since going public in 1991, Kung saidhe expects a loss for 1995 based on expenses related tothe second Phase III lupus study.

Genelabs credited its second quarter net income of$700,000, or 2 cents per share, to $10 million in contractrevenue from the diagnostics collaboration with Chironand Ortho. n

-- Charles Craig

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