Contributing Writer

Critical Therapeutics Inc. closed a $20 million registered direct offering Wednesday, less than a week after restructuring to focus on its franchise surrounding the asthma drug zileuton. The Lexington, Mass.-based company already markets Zyflo (zileuton tablets) but is placing its bets on controlled-release and intravenous versions in development.

After expenses, the financing will add $18.5 million to the estimated $40.2 million in cash Critical Therapeutics had as of Sept. 30. The company sold 7.5 million units at a price of $2.68 per unit, with each unit consisting of one share of common stock and one warrant to purchase 0.5 shares of common stock on or before Oct. 26, 2011, at $2.62 per share. Following the offering, in which New York-based Lazard Capital Markets LLC served as exclusive placement agent, Critical Therapeutics will have about 42 million shares outstanding.

The restructuring and subsequent financing "concentrate existing resources on our two most promising drugs," President Frank Thomas said in a conference call, pointing to controlled-release zileuton CR and zileuton I.V.

Late last week, Critical Therapeutics announced plans to reduce net cash expenditures by cutting 63 positions before the end of the year, leaving the company with 59 employees.

Ian Sanderson, analyst with Cowen & Co. called the portfolio restructuring disappointing. "A good deal of the value of the company was in the pipeline, which they won't be able to bring forward on their own," he said.

The cuts will come primarily from the specialty sales force that markets Zyflo and from the research and development department. With anticipated revenues of $1.9 million as of Sept. 30, Zyflo has had a rough time penetrating the market due to its four-times-daily dosing schedule.

"Market research and feedback from physicians show that dosing is the No. 1 impediment," said Linda Lennox, vice president of investor and media relations.

Enter zileuton CR, with a twice-daily dosing schedule that the company is betting will increase marketability. Critical Therapeutics plans to launch the drug in the second half of 2007, assuming it receives approval on its May 31 PDUFA date, and expects to use "a portion" of the financing to help "lay the groundwork" for commercializing zileuton CR, Thomas said.

Specifically, the company outlined plans to initiate several smaller pilot clinical trials prior to the approval in sub-populations, such as smoking asthmatics and aspirin-sensitive asthmatics. Other launch plans include presenting and publishing scientific data, which Lennox said addresses the No. 2 concern heard from physicians.

Critical Therapeutics also is "in discussion" with potential partners regarding a co-promotion deal on zileuton CR, said Lennox, and is evaluating life-cycle strategies that may extend the 2010 and 2012 patent expiration dates on Zyflo and zileuton CR, respectively, allowing for a move into new indications such as chronic obstructive pulmonary disease, atherosclerosis and acute asthmatic exacerbations, among others.

In addition to supporting the approval and launch of zileuton CR, proceeds from the financing will be used to fund development of zileuton I.V., which is intended for acute asthma attacks in a hospital setting. A Phase I/II trial completed earlier this year showed an improvement in the lung function of zileuton I.V.-treated patients compared to those treated with placebo, and Critical Therapeutics plans to initiate a Phase IIb trial in the first half of 2007.

Zileuton is an inhibitor of 5-lipoxygenase, the main enzyme responsible for the production of leukotrienes, the inflammatory mediators that trigger asthma symptoms such as inflammation, swelling, bronchoconstriction and mucus secretion. While leukotriene inhibitors such as Merck & Co. Inc.'s Singulair block a single receptor for a leukotriene, zileuton blocks the entire cascade, making it ideal for the estimated 2 million to 3 million moderate to severe asthmatics who have failed other therapies, the company said.

Yet Sanderson was skeptical: "Even for later-stage patients, the four-times daily dosing is a real impediment. We hope the twice-daily will resolve that and allow the company to carve out a niche, but that remains to be seen."

The drug once was marketed by Abbott Laboratories, of Abbott Park, Ill., which obtained FDA approval in 1996 for the immediate-release, four-times-a-day tablet for the prevention and chronic treatment of asthma. Due to high competition, Abbott pulled the drug from the market, but Critical Therapeutics licensed it in 2004 and received FDA approval in September 2005. (See BioWorld Today, Jun. 8, 2005.)

Beyond zileuton, Critical Therapeutics recently discontinued work with the anti-inflammatory drug CTI-01. Stability issues resulted in the discontinuation of a Phase II trial in March 2006, and resulting data failed to demonstrate positive results compared to placebo in patients at risk of serious complications, including organ damage, while undergoing major cardiac surgery involving the use of the cardiopulmonary bypass machine. (See BioWorld Today, March 16, 2006.)

The company also has two programs in preclinical development. Internally, its slimmed-down research staff is completing preclinical work with an alpha-7 nicotinic receptor agonist for inflammatory diseases and conditions. Once a clinical candidate is selected, the company will seek to partner the drug and already has retained Lazard Freres & Co. LLC to assist with identifying and executing the deal. Critical Therapeutics also has a deal with MedImmune Inc. for the development of HMGB1 antibodies for chronic and acute inflammatory diseases, and a clinical candidate from the program is expected to be selected by the end of the year.