Somatix Therapy Corp. said Monday that institutional investors havecommitted to purchasing units in a private placement that wouldresult in gross proceeds of about $16.5 million, with $15 milliongoing to the company.

The Alameda, Calif. company, which was nearing the end of its cash,is selling common and preferred stock units that would convert intoabout 4.5 million new shares. The units include warrants that couldbe exercised over three years for another 2.4 million common shares.

Somatix, which focuses on gene therapy and delivery, reportedhaving about $5.4 million in cash at the end of its third quarter, onMarch 31. It has been burning between $4.5 million and $5 millionper quarter, said Mark Bagnall, the company's vice president andchief financial officer. Before the offering Somatix had about 18million shares outstanding.

Bagnall said the company's acquisition of Merlin PharmaceuticalCorp. earlier this year made the financing that much easier. (SeeBioWorld Today, Dec. 21, 1994, p. 1; and Feb. 15, 1995, p. 2.)

"In many respects the Merlin acquisition was very helpful in thisround of financing," Bagnall told BioWorld. "Merlin was thecompletion of the broadening of our technological base in gene-transfer capabilities. We brought in AAV [adeno-associated virus],AV [adenovirus] and in vivo techniques _ and the leading lights inthose areas" _ including Richard "Jude" Samulski, a University ofNorth Carolina professor; and adenovirus virologist Thomas Shenk, aprofessor of molecular biology at Princeton University.

Bagnall said the addition of Merlin also has helped in attractingpotential collaborators.

The private placement, managed by New York-based Merrill Lynch& Co., was made to institutional investors and one or two individuals,Bagnall said. It involves the sale of $10.1 million in common stockunits and $6.4 million in convertible preferred stock units.

The 2.75 million common stock units, sold in the form of a privateinvestment in a public entity, sold for $3.68 each and consist of oneshare of stock and a warrant to purchase .56 of a share at $4 pershare. The $3.68-per-unit price was a discount to the $4.31 closingprice ($4 bid price) of Somatix on Friday.

Somatix stock (NASDAQ:SOMA) closed at $4.25 Monday, down 6cents per share.

The 254,000 preferred units, purchased for $25 each, can beconverted into 6.25 shares of common stock at $4 per share, andinclude warrants that can be exercised for 3.5 shares at $4 each.

The preferred stockholders will get seven common Somatix shareseach year for every 100 shares they own, until the preferred convertsto common stock. Preferred stock also carries a liquidationpreference, extraordinary voting rights if the company's cash positionfalls below $5 million, and a price reset provision (for 13 months)that calls for the conversion price to be reset to the lower of thecurrent conversion price or the 20-day average closing price in the13th month.

"Most of the time we were marketing this [financing], which has beenabout six weeks, our stock was between $3 and $3.25," Bagnall said."From that perspective we're extremely pleased where we ended upselling the stock."

Bagnall said the financing could last the company about a year, orthree-quarters of a year if anticipated milestone payments have notcome in by that time. Within 12 months, Somatix should receive $2.5million for the filing of an investigational new drug (IND) applicationfor its GVAX vaccine technology for colorectal cancer; and $1million to $2 million from Baxter Healthcare Corp. for attainingvarious milestones in their collaborations.

Baxter, of Deerfield, Ill., and Somatix began their collaboration in1993 with a focus on gene therapy for treatment of hemophilia A andB. A second agreement signed in April 1994 related to developmentof Somatix's T body technology for cancer. And last November thecompanies agreed to collaborate on the development of gene vectorsto treat chronic granulomatous disease, for which an IND has beenapproved; and a second undisclosed area involving cellular therapy.

Somatix's lead technology is its GVAX therapeutic vaccine, which isin two Phase I trials in melanoma and one Phase I trial in kidneycancer. Phase I trials in colorectal and prostate cancers are expectedto start this year, Bagnall said. The plan, he said, is to pick one of theindications for an efficacy trial to start in the first half of 1996.

With GVAX therapy, tumors are removed, then genetically alteredand irradiated so they won't reproduce. The resulting product then isfrozen down into formulations for subcutaneous injection. n

-- Jim Shrine

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