Vasogen Inc. is raising $42.3 million in a direct offering of common stock to fund development of its new line of products for systemic inflammation.

The company sold 9 million shares at $4.70 per share and anticipates net proceeds of about $39.3 million.

SG Cowen & Co. LLC, of New York, is acting as lead and sole book-running agent, and Needham & Co. Inc., of New York, is acting as co-lead agent. AG Edwards & Sons Inc., of St. Louis, is acting as placement agent. The closing is scheduled for Feb. 2.

The financing was intended "primarily to drive our drug development program," said David Elsley, president and CEO of the Mississauga, Ontario-based company. While Vasogen's existing cash is funding two ongoing Phase III trials for Celacade in chronic inflammation in patients with cardiovascular disease, he said money was needed to advance the company's preclinical products based on its anti-inflammatory drug platform.

"We've just moved a new drug specifically for neuro-inflammation into clinical development," he said. "That was our major impetus for financing right now, as well as supporting the overall research and development efforts of the company."

Vasogen recently received approval to begin Phase I trials of VP025 for neuro-inflammatory diseases and, with this recent financing, it should have funding for at least the next two years, Elsley told BioWorld Today.

"This puts the company with about $100 million in cash," he said, adding that the average burn rate for 2005 is projected at $4.5 million per month. "So we see funds taking us to 2007."

But those projections do not include funds anticipated from partnerships. Elsley said he expects to sign "two major partnering alliances" in 2005, which would provide the company with "significant up-front licensing fees and milestone payments."

Vasogen, which develops immune-modulation therapies to treat cardiovascular and neurological diseases, developed VP025 based on the company's Celacade drug technology. VP025 is "part of a new class of drugs focused on systemic inflammation," he said, adding that the drug will be "optimized to treat inflammation of the brain."

He said the drug technology is designed to "modulate cytokine levels at the tissue level, so we're triggering an interaction with immune cells, specifically antigen-presenting cells." The technology works by down-regulating pro-inflammatory cytokines and up-regulating anti-inflammatory cytokines.

Elsley said the company is continuing with preclinical work to target drugs for other neuro-inflammatory indications, such as Alzheimer's disease and Parkinson's disease.

In the meantime, Vasogen expects results this year from its Phase III trials with Celacade. The company has nearly finished enrollment in the 2,000-patient study in chronic heart failure. Results are expected in the last half of the year.

A 500-patient study of Celacade in peripheral arterial disease should complete its primary endpoint next quarter, Elsley said.

"We're looking forward to 2005," he added. "This is going to be a year when we're reporting two Phase III trials and two expected alliances with major marketing organizations to launch the product, initially in Europe and then in the U.S."

Vasogen last raised money in a direct offering in February, when it reported about $50 million from the sale of 8.5 million shares at $5.90 per share. (See BioWorld Today, March 1, 2004.)

Following the offering, Vasogen has about 82 million shares outstanding. The company's stock (NASDAQ:VSGN) dropped 8 cents Friday to close at $5.06.