Associate Managing Editor

DepoMed Inc. raised $20 million privately and will use the funds for clinical trials of multiple products, as well as to give it muscle in partnering talks.

DepoMed, of Menlo Park, Calif., sold 9.3 million shares at $2.16 to accredited investors. The price represents the average closing price of DepoMed's common stock for the 10 days preceding the closing of the financing. Investors also received 3.2 million common stock warrants exercisable for five years at the same price. If all warrants were exercised, the financing would total about $26.9 million.

DepoMed's stock (AMEX:DMI) rose 27 cents Tuesday, or 10.8 percent, to close at $2.77. Including the financing, the company has about 25.7 million shares issued and outstanding.

The key to raising the funds in today's tight environment was "the story," said John Hamilton, vice president and chief financial officer at DepoMed.

"We have late-stage products in Phase III clinical trials," he told BioWorld Today. "It's a technology that the investors understand." The funds, Hamilton added, would be used for Metformin GR, Ciprofloxacin GR and Furosemide GR.

Metformin GR for Type II diabetes is halfway through its Phase III program. The product uses DepoMed's Gastric Retention (GR) technology, which causes the drug to swell and remain in the stomach for a number of hours, continuously releasing it at a controlled rate. In January, the company released data from the first Phase III that involved 529 patients, showing the product - delivered once daily - was comparable to multiple doses of New York-based Bristol-Myers Squibb Co.'s immediate-release Glucophage product. The second Phase III is expected to involve about the same number of patients and is scheduled to end in October, Hamilton said. The product is partnered with Biovail Corp., of Toronto.

Ciprofloxacin GR, its antibiotic product for urinary tract infections, is scheduled to begin a Phase III trial this quarter.

"Ciprofloxacin is not partnered," Hamilton said. "We plan on partnering it out; we're in discussions with various people but we haven't given any guidance." He added that having the financing "in our back pocket" gives DepoMed the ability to be "selective and careful in the process."

Beneath that, the company has Furosemide GR, a controlled-release diuretic formulation awaiting Phase II trials, which are under design, the company said. Hamilton said the drug might be able to solve a major side effect - massive diuresis - associated with the product. DepoMed also would like a partner for the program.

Looking ahead, Hamilton sees the funds "lasting through the end of 2004."

"Which means we've got about a year and a half to do the kinds of licensing deals that will bring in fees and milestones to take us to a major liquidity event," he said, pointing to a Metformin GR approval, which would bring a $25 million milestone payment from Biovail.

If and once that approval comes, Biovail also has committed to launch the product within 120 days, Hamilton said. The companies' deal, valued at potentially more than $37 million, was signed in May 2002, and called for Biovail to buy about 2.4 million shares at the time. Biovail also was an investor in the $20 million private placement, raising its stake in DepoMed to 16 percent and making it the largest stockholder. (See BioWorld Today, May 30, 2002.)

The financing was led by MDS Capital, of Toronto. Also participating were Hambrecht & Quist Capital Management LLC, of Boston; HBM BioVentures (Cayman) Ltd., of Baar, Switzerland; Easton Hunt Capital Partners LP, of New York; Special Situations Funds; and Quogue Capital LLC.