Ligand Pharmaceuticals Inc. and Allergan Inc. completed the fundingof their retinoid research corporation Monday with an offering thatgrossed $32.5 million.

Demand in the 3.25 million-unit subscription offering exceeded thesupply by nearly 3-to-1. The units sold for $10 each and begantrading Monday under the NASDAQ symbol "ALRZV." The closingprice Monday was $12.25 per unit.

Each unit consists of one share of common stock of Allergan LigandRetinoid Therapeutics Inc. (ALRT) and two five-year warrants, eachof which entitles the holder to purchase a share of Ligand for $7.12.Merrill Lynch & Co., of New York, acted as adviser in thetransaction. The units can't be converted for two years.

Jeffrey Casdin, first vice president of Merrill Lynch, said a number offactors made this a good deal for investors.

"This one is especially attractive," Casdin told BioWorld, "becausethe partners are putting up two-thirds of the cash to further developthe technology, which is fairly late-stage to begin with. That's asubstantial contrast to a lot of other deals that have been done."

In addition, he said, the warrants were struck at a time when Ligandstock was trading near its low, so even at a 20 percent premium, theexercise price of $7.12 is a good one for a company with suchpotential. The 30 percent annual rate of return is similar to others thathave been offered. "The difference here is the probability of gettingthat return," Casdin said.

Ligand's stock (NASDAQ:LGND), which has been recommendedrecently by analysts, already is higher than the exercise price. Itclosed Monday at $7.56, up 69 cents, or 10 percent. Allergan(NYSE:AGN) was down 25 cents to close at $26.25.

ALRT, essentially an off-balance sheet financing vehicle, is designedto exist three to five years, the time projected to begincommercialization of retinoid products. Buyback of the shares afterthree years would be for $21.97, and after five years it's $37.13.Ligand has the right to buy back the ALRT shares, and Allergan thenhas the right to purchase a 50 percent interest, which would put thecompanies in a position similar to that before creation of ALRT.

Susan Atkins, vice president of corporate communications for SanDiego-based Ligand, said the registration for the offering waseffective May 5. Current holders were issued their rights, which theycould exercise, sell or ignore. Only 390,000 rights did not getexercised, and there were requests for 5.62 million over and abovethe 2.86 million that were exercised and filled.

"There was an enormously active market in the buying and selling ofthose rights," Atkins said, adding that more than 800,000 rightstraded on some days.

Investors Confident Of Opportunity

"The oversubscription indicates that investors believe ALRT is agood opportunity," Atkins said.

Michael Timmerman, senior communications specialist for Irvine,Calif.-based Allergan, surmised part of the heavy demand could beattributed to fact that retinoids are a known technology, with retinoid-based products already on the market. With Allergan's expertise inretinoids and Ligand's in intracellular receptors, he said, they havethe potential to develop efficacious products that have minimal sideeffects.

Retinoids are naturally occurring hormones related to vitamin A,which have biological effects on a variety of cell types.

The $100 million contribution to ALRT now is complete. Allerganput in $50 million in cash. Ligand's $50 million contribution camefrom $11.5 million in cash, $6 million raised through sales of stock toan Allergan subsidiary, and the $32.5 million from the offering.Allergan and Ligand will account for their cash contributions of $50million and $17.5 million, respectively, as charges to operatingexpenses in the second quarter.

ALRT's lead product is ALRT 1057 (formerly LGD 1057), a 9-cis-retinoic acid, that's in Phase II trials in non-Hodgkin's lymphoma andrenal cell carcinoma. A topical formulation is in Phase II for Kaposi'ssarcoma and mycosis fungoides, a form of cutaneous T celllymphoma. Several more Phase IIb trials are expected to be initiatedin the second half of this year, Atkins said, for indications includingsquamous cell carcinoma of the head and neck, ovarian cancer andone in HIV to be conducted by the National Cancer Institute. Withoral 1057, trials are expected in AIDS-related Kaposi's sarcoma,hormone-refractory prostate cancer, acute promyelocytic leukemia,and multiple myeloma. n

-- Jim Shrine

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

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