Sunesis Pharmaceuticals Inc. priced its initial public offering, raising $42 million to fund upcoming clinical trials of its top three cell-cycle inhibitors in development for cancer.

Like many other pricings this year, the South San Francisco-based company's IPO came in lower than expected. In its initial December filing, Sunesis had planned for funds of $86 million. The company later set a prospective price range between $9 and $11 for the sale of 6 million shares, which, at the low end, would have totaled $54 million, but the actual share price fell to $7 each.

Shares (NASDAQ:SNSS) dropped 50 cents on the first day of trading, closing Tuesday at $6.50.

The company expects net proceeds to total about $37.3 million, or $43.2 million if the 900,000-share overallotment option is exercised in full. Lehman Brothers Inc. and SG Cowen & Co. LLC, both of New York, are acting as joint book-running managers, and Needham & Co., also of New York, serving as co-manager.

Due to SEC-imposed quiet-period rules, Sunesis declined comment, though the company said in its prospectus that it planned to use about $18 million for continued clinical development of its three cancer products. Other funds will go toward discovering additional product candidates, paying off debt and for general corporate purposes.

Sunesis' most advanced product, SNS-032, a CDK inhibitor, is expected to begin a Phase I/II trial next quarter in patients with advanced solid tumors. The compound, in-licensed in April from New York-based Bristol-Myers Squibb Co. in exchange for cash and equity payments of up to $86 million, is a small-molecule cell-cycle inhibitor designed to target CDK2, CDK7 and CDK9 and halt uncontrolled cell division. Additional Phase I/II and Phase Ib trials could start next year to evaluate SNS-032 in different cancer types. (See BioWorld Today, April 29, 2005.)

In 2003, Sunesis licensed cytotoxic compound SNS-595 from Tokyo-based Dainippon Pharmaceuticals Co. That product is in Phase I development and is expected to be tested in leukemia and non-small-cell lung cancer. The company's third product, SNS-314, an Aurora kinase inhibitor, recently was selected for investigational new drug enabling preclinical development. Clinical trials of SNS-314 are expected to begin next year. Sunesis' research and development work is based on a discovery approach known as "tethering." That process involves taking small drug fragments, based on their binding properties, and linking small molecule with the fragments to access certain nucleotide binding sites.

The company relies on that process to complete its internal drug development, and also leverages the platform in collaborations with other firms. It is working on an RAF kinase inhibitor program with Cambridge, Mass.-based Biogen Idec INC., in a deal that provides Sunesis with a co-development and co-promotion option for up to two drugs. In another deal, Sunesis is collaborating with New Brunswick, N.J.-based Johnson & Johnson to use the Tethering platform for discovering small-molecule inhibitors of cathespin S, an enzyme involved in the activation of T cells. J&J holds worldwide rights to commercialize any drugs stemming from that agreement.

Sunesis recorded a net loss of $16.5 million for the first six months of 2005. For that period, the company's revenues totaled about $8.6 million, and operating expenses exceeded $25 million. As of June 30, the company had cash, cash equivalents and marketable securities totaling about $25 million.

Following the offering, the company will have about 21.5 million shares outstanding.

In other financing news:

• Cyberkinetics Neurotechnology Systems Inc., of Foxborough, Mass., sold about $11.4 million of privately placed newly issued shares of common stock and warrants for the purchase of additional shares to institutional investors. The company issued an aggregate of about 9.5 million shares at a price of $1.20 each, with warrants to purchase up to 4.8 million additional shares at an exercise price of $1.60 per share. Cyberkinetics also issued shares to Hunter World Markets Inc., of Beverly Hills, Calif., for services rendered in connection with the financing. New York-based Rodman and Renshaw LLC and San Francisco-based Seven Hills Partners LLC received warrants for services. Proceeds from the financing are expected to support the launch of the NeuroPort System, as well as continued development of the BrainGate System and for general corporate purposes.

• Endo Pharmaceuticals Holdings Inc., of Chadds Ford, Pa., is offering 26 million secondary shares of common stock pursuant to its existing shelf registration statement. The majority of the shares are being sold by Endo's largest shareholder, Endo Pharma LLC, an affiliate of Kelso & Co., a private equity investment firm. Shares also are being sold by certain executive stockholders and directors. Following the completion of the offering, Endo Pharma LLC will hold 20.5 percent of Endo's outstanding common stock. Endo has about 133 million shares outstanding. Its shares (NASDAQ:ENDP) lost 55 cents Tuesday to close at $28.39.

• GenVec Inc., of Gaithersburg, Md., closed its previously announced direct offering of common stock, raising gross proceeds of about $15.2 million. The company sold 7.6 million shares at $2 per share. Net proceeds are expected to total about $14 million and will fund ongoing product development, including the company's clinical trials in cancer and cardiac disease, and the expansion of manufacturing capabilities and general corporate purposes. New York-based SG Cowen & Co. LLC acted as exclusive placement agent for the transaction. Shares of GenVec (NASDAQ:GNVC) closed Tuesday at $2.02, down 1 cent.

• Palatin Technologies Inc., of Cranbury, N.J., received $10 million from Bristol, Tenn.-based King Pharmaceuticals Inc., as part of their strategic alliance to jointly develop Palatin's PT-141 for the treatment of male and female sexual dysfunction. King will receive 4.5 million shares of common stock, plus warrants to purchase an additional 719,894 shares at an exercise price of $2.22. The companies have ongoing Phase II trials of PT-141, a melanocortin receptor agonist, in both male and female patients. Shares of Palatin (AMEX:PTN) gained 8 cents Tuesday to close at $2.36.

• Respirics Inc., of Raleigh, N.C., closed its Series A round, receiving funds from both new and existing investors, including two Research Triangle-area early stage investment firms: Catalysta Ventures and Research Triangle Ventures. The company did not disclose the amount of funds raised, but said proceeds will be used to advance a number of internal drug development programs involving its Acu-Breathe dry powder inhaler platform.