NeoRx Corp. announced Thursday that it has completed a $9million private financing.

The transaction, initiated June 24, involved the placement of4.5 million shares of newly issued common stock(NASDAQ:NERX) at $2 each. This share price constitutes adiscount of 11 percent from the price of the stock on the daythe subscriptions were received. (The stock closed at $2.25 ashare on June 23.)

In connection with the private placement, which was arrangedby Daiwa Securities America Inc. and D. Blech & Co. Inc., NeoRxcanceled 5 million shares each of its $1.75- and $2.50-per-share warrants held by Blech in return for 3 million shares ofcommon stock. NeoRx now has approximately 37.2 millionshares outstanding. The stock lost 9 cents a share on Thursday,closing at $2.38.

Under the terms of the transaction, NeoRx did not actuallyreceive the proceeds until the registration statement for resaleof the new shares (S3 registration) became effective. Nor werethe new shareholders able to trade the stock until the S3registration statement became effective.

NeoRx had $8.2 million in cash and short-term investments asof June 30. The additional $9 million, plus a $3.6 millionmilestone payment due this quarter from NeoRx's developmentpartner, Boehringer Ingelheim, will give the Seattle companysufficient funds to operate into 1995, said Paul Abrams,president and chief executive officer.

"Our strengthened financial condition ... will enable us to stayon track with the filing of an investigational new drug (IND)application for our pretargeted cancer therapy," he added.

NeoRx was one of the first -- but by no means the only --publicly traded biotechnology companies this summer to raisemoney from the private sector by taking advantage of the typeof creative financing exemplified by this transaction.

In general (and there are variations), these transactionsinvolve selling newly issued shares of stock at a discount to thepublic price. The company doesn't actually receive the fundsuntil the registration statement (usually an S3) becomeseffective; for NeoRx, this took about two months.

Once that statement is effective, the new investors canimmediately start trading their stock instead of having to holdit for some prespecified period of time.

And even though the stock is sold at a discount, it doesn'tnecessarily translate to a loss; it might even be better than onecould expect out of a public, follow-on offering, according toAbrams. What often happens when a company announces thatit will offer new shares publicly is that "the stock getshammered," he said (due to traders taking a short position inthe stock). But if a company is selling to private investorsrather than the public, it has more control over picking thoseinvestors.

This type of financing "protects the stock price much betterthan a public follow-on offering," commented Gregory Brown,an analyst with Vector Securities International Inc. Vector hasarranged similar creative financing for several companies,including Alpha-Beta Technology Inc., which placed $20 millionin a private transaction initiated June 3 and completed July 6.

The financing has a "unique structure that fits companies thathave liquidity," Brown explained.

But there is a caveat. "There has to be a demand for the stockfor this to work," Brown told BioWorld.

-- Jennifer Van Brunt Senior Editor

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