A judge ruled last week that Telios Pharmaceuticals Inc. musttemporarily set aside $13 million on behalf of preferred stockholderswho have a class-action suit pending against the San Diegocompany.

Another hearing in U.S. district court, in San Diego, is scheduled forJan. 26. One of the items expected to be considered is the lifting orcontinuation of the order. The suit was filed in October and followeda securities offering in which Telios grossed about $14.25 million. Aweek later the company reported the failed trial of its lead drug,Argidene gel, for diabetic foot ulcers.

"The judge's order was to take the $13 million and invest it in U.S.securities, pending the resolution of the hearing on the 26th," ToddSimpson, Telios' chief financial officer, told BioWorld. "It's atemporary order. There's been no discovery done up through thisruling. What's going to happen between now and [Jan. 20], whenpapers need to be filed, is limited directed discovery."

Telios said that it currently has $17 million in cash, $13 million ofwhich is going into short-term treasury securities. Simpson said thecompany's burn rate has been reduced over the past few monthsfrom about $1.8 million per month to about $800,000.

Telios said it is continuing to seek a partner that would acquire ormerge with it, and is taking other steps to reduce its cashrequirements. One effort is geared toward restructuring liabilities,and Telios said it has discussion under way with creditors to that end.

The Argidene gel trial resulted in failure because of an unexpectedlyhigh healing rate in the control group. A nearly equal number ofthose given the drug and placebo (41 and 40 percent, respectively)achieved complete healing at 20 weeks, the primary endpoint in theblinded, randomized, controlled 150-patient trial. Telios officials atthe time said they expected healing of 20 to 25 percent in the controlgroup.

The trial news was released on Thursday, Oct. 6. Trading was haltedon the stock (NASDAQ:TLIO) that day. A series of events ensued.

On Oct. 7, the company offered to but back all the securities it soldin the September offering. Telios stock lost 60 percent that day,falling from $2 to 81 cents per share.

On. Oct. 13, Telios announced that it was looking for a mergerpartner or other alliance, and was taking steps to reduce expenses.Staff cutbacks followed that eventually reduced the company's workforce from 138 employees to about 35. In December, Donald Grimmresigned as president and CEO, and the company also withdrew itsoffer to buy back the securities, saying the tender offer likely wouldhave led to insolvency.

Telios' stock closed at 38 cents per share Friday, down 6 cents. n

-- Jim Shrine

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