Staff Writer

Kosan is raising $45.5 million through a registered direct offering as it gears up for late-stage trials of two classes of cancer compounds.

The Hayward, Calif., company is selling 7 million shares from an effective registration statement to institutional investors at $6.50 per share. Kosan's stock (NASDAQ:KOSN) fell 28 cents Friday to close $6.67.

"We think it is the right deal at the right time at the right size and for the right reasons," Robert Johnson, president and CEO of Kosan, told BioWorld Today. "We want to finance ahead of need. Kosan has significant momentum behind it this time. We're starting pivotal trials and a have a very interesting pipeline."

Kosan is conducting trials of cancer compounds from its program in inhibitors of Hsp90, or heat shock protein 90, and its epothilones program, the latter in collaboration with F. Hoffmann-La Roche Ltd. Both programs are poised to move into later-stage development this year.

The company's preclinical program on motilin agonists was partnered in December with Pfizer Inc. in a deal that meant $12.5 million up front to Kosan and up to $250 million in development and commercialization milestones, as well as royalties on any resulting sales. The lead candidate from that program is KOS-2187, a compound targeting gastrointestinal diseases that preclinically demonstrated improved gastric emptying.

Kosan also has preclinical cancer programs in nuclear export inhibitors and next-generation Hsp90 inhibitors and epothilones.

The company's lead compounds from its Hsp90 inhibitor program are tanespimycin (KOS-953) and a second-generation agent, alvespimycin (KOS-1022). KOS-953, designed to target multiple pathways involved in cancer cell growth, is in Phase I and II trials — primarily for multiple myeloma in combination with Millennium Pharmaceuticals Inc.'s Velcade (bortezomib), and for HER2-positive metastatic breast cancer in combination with Genentech Inc.'s Herceptin (trastuzumab). Oral and intravenous formulations of KOS-1022 are in Phase I trials in hematological cancers and solid tumors.

Johnson said Kosan plan to start a Phase II/III registrational trial of KOS-953 with Velcade vs. Velcade alone in first-relapse multiple myeloma patients, along with a companion trial in relapsed-refractory patients. Both, he said, are expected to be up and running in the first half of this year.

Kosan also plans to start a Phase II monotherapy trial of KOS-1022 in the first half of the year, to be followed by a Phase II/III trial with Herceptin later in the year.

Johnson said partnering discussions on the Hsp90 program have been initiated.

Kosan and Roche are developing epothilones, which act in a manner similar to taxanes, under a collaboration begun in September 2002. The lead agent, KOS-862, is being evaluated in Phase II trials in HER-2-positive metastatic breast cancer, both alone and in combination with Herceptin. A second candidate, KOS-1584, which is believed to have improved pharmacokinetics, is in a Phase I trial in solid tumors. Johnson said Kosan and Roche would decide this quarter the most promising path forward, both in terms of compounds and indications. Kosan retained a co-promotion option in the U.S. on resulting products.

Cowen and Co LLC is lead placement agent for this offering. Co-placement agents are Leerink Swann & Co. and Rodman & Renshaw LLC. The stock sale was expected to close Tuesday.

Kosan also has available to it an equity financing commitment, established in July, from Kingsbridge Capital Ltd. Kingsbridge committed to purchase up to $50 million of Kosan stock over three years, at discounts of 6 percent to 10 percent to an eight-day average. Any draw-downs would be at Kosan's discretion.

The company on Sept. 30 reported a cash position of $54.3 million, a total that did not take into account the $12.5 million received from Pfizer, a $2 million milestone payment and a $3 million draw-down from the Kingsbridge commitment. It had a net loss for that quarter of $7.5 million, and $24.9 million for the first nine months of 2006. It also reported 34.57 million shares outstanding as of Sept. 30.

In other financing news:

• Cell Therapeutics Inc., of Seattle, said it is selling $17.6 million of 3 percent convertible preferred stock and warrants in a registered offering to institutional investors, including existing shareholders. The preferred stock will be convertible into about 10.55 million common shares, at an initial conversion price of $1.6725 per share. Investors also will get warrants to purchase up to 5.27 million shares of common stock at $1.61 per share, the Feb. 7 closing bid price. The offering is expected to close Tuesday. Rodman & Renshaw LLC is exclusive placement agent.

• Critical Biologics Corp., of Cambridge, Mass., said it closed a $7 million Series A financing round. The investment was provided by Morningside Ventures. The funds will enable CBC to advance its recombinant human plasma gelsolin, targeted for the prevention of life-threatening critical-care complications associated with low plasma gelsolin levels. Levels of gelsolin, a naturally occurring protein found inside cells and in the plasma, decrease shortly after various tissue injuries such as trauma, major surgery, burns and sepsis, CBC said. CBC is focused on developing diagnostics and therapeutics to treat those patients with low plasma gelsolin levels at a high risk of complications.

• Genelabs Technologies Inc., of Redwood City, Calif., entered into an agreement to sell about 5.8 million common shares, and warrants to purchase about 1.7 million shares, to institutional and accredited investors for gross proceeds of $10 million. Genelabs is selling the shares and warrants for $1.72 per share (which includes the warrant purchase price of $0.125 per share underlying the warrants), with a warrant exercise price of $1.85 per share. The deal is expected to close Tuesday.

• DOR BioPharma Inc., of Miami, completed a $5.5 million private placement of common stock with institutional investors, as well as members of DOR's senior management and board of directors. DOR sold 11.68 million shares at $0.47 per share, a 6 percent discount to Thursday's closing price. Proceeds will be used for upcoming regulatory events and further clinical development related to orBec (oral beclomethasone dipropionate), including an upcoming FDA Oncology Drugs Advisory Committee meeting, as well as for further development of its pipeline and general corporate purposes.

• Nuvo Research Inc., of Mississauga, Ontario, raised about C$7.9 million (US$6.7 million) through a warrant incentive plan designed to encourage the early exercise, by Jan. 31, of three series of warrants. In total, 19.55 million warrants were exercised. About 32.6 million warrants remained outstanding, along with 16.7 million stock options. Separately, Nuvo said it had discussions with the FDA regarding an approvable letter issued by the agency on Dec. 28 for Pennsaid, a topical, non-steroidal anti-inflammatory drug for treating osteoarthritis. The company said it may have to generate additional data to satisfy requirements set out in the approvable letter. But it said the issues do not relate to safety or efficacy, and no additional Phase III trial was requested. Further updates will be provided when they become known, Nuvo said. Nuvo's stock (TSX:NRI) fell C$0.12 Friday, or 16.4 percent, to close at C$0.61.

• BioMimetic Therapeutics Inc., of Franklin, Tenn., is raising about $36 million in a public offering of 2.1 million shares priced at $17.15 each. Company stockholders are offering an additional 705,425 shares, though BioMimetic will not receive any proceeds from that sale. The company granted underwriters a 30-day option to buy an additional 393,536 shares to cover any overallotments. Proceeds will fund research and development activities, commercialization activities relating to periodontal regeneration product GEM 21S, in-licensing activities and general corporate purposes. Deutsche Bank Securities Inc. is acting as the sole book-running manager, while Pacific Growth Equities LLC is serving as co-lead manager and First Albany Capital Inc. and AG Edwards & Sons are co-managers.