Questcor Pharmaceuticals Inc. played "Let's Make a Deal" in acquiring Nascobal, a vitamin B-12 product for multiple sclerosis and inflammatory bowel disease, from Nastech Pharmaceutical Co. Inc., and simultaneously raised $5 million to fund the purchase through a separate private equity placement.

The Union City, Calif.-based company is paying up to $18.2 million for rights to Nascobal, a nasal gel formulation of cyanocobalamin USP (vitamin B-12) currently marketed by Nastech. Approved by the FDA in 1997, last year its labeling was expanded to include multiple sclerosis, Crohn's disease, HIV/AIDS and other malabsorptive conditions that can result in vitamin B-12 deficiencies.

Questcor said Nascobal's intranasal delivery results in better dosing than oral delivery for such patients, and said it has a better side effect profile than injectable alternatives. Equally important for Questcor, the acquisition represents its third drug purchase in as many years, all of which, fit into its marketing plans.

"We have a product that's unique and makes life a lot easier for patients suffering from B-12 deficiency," Charles Casamento, Questcor's chairman, president and CEO, said during a conference call. "For us, it is really a very, very good strategic fit - this product is one that's used in patients and used by physicians in two very critical strategic areas where we are currently promoting."

Terms include an initial $9 million payment followed by an additional $5.2 million due before Dec. 31. Questcor also is acquiring rights to Nascobal nasal spray, an improved dosage form for which Bothell, Wash.-based Nastech plans to file a new drug application by the end of the year. Questcor will pay $2 million if and when the FDA accepts the application and it is transferred from Nastech, plus $2 million more upon product approval and issuance of a pending U.S. patent.

The companies also entered a five-year supply agreement in which Nastech will manufacture Nascobal at its Hauppauge, N.Y., facility at a fixed-unit price. The agreement is renewable in two-year increments thereafter.

Casamento said Questcor expects the acquisition to be accretive to operating results and would aid in its push toward profitability in the coming fourth quarter. The company expects to increase its $4 million annual sales figure to between $5.5 million and $6 million, in large part because its sales force will use established relationships to increase the drug's profile.

Questcor deals with neurologists through the sale of Acthar, which is used to treat flares associated with multiple sclerosis, and does business with gastrointestinal doctors through sales of VSL No. 3, a probiotic used to promote normal gastrointestinal function.

"We believe it has the potential to be one of our largest-selling products," Casamento said, though he added that its purchase necessitated additional financing as the company had only about $15 million in cash, cash equivalents and short-term investments as of May 31. "So we needed to raise a small amount of money."

In the financing, Questcor issued about 4.98 million common shares at $1.01 apiece, representing the volume-weighted average price of its common stock for the five days prior to and including the close of the private placement. Questcor also issued warrants for investors to purchase about 3 million common shares at an exercise price of $1.26 apiece, representing a 25 percent premium to the issue price of the common stock. The warrants are exercisable into common shares for five years.

The placement was led by existing shareholder Broadwood Capital, of New York, with additional investments from various other New York-based firms including Craig Drill Capital, Midsummer Capital, Islandia LP and others.

Casamento noted that following the closing of the private placement and after the initial payment to Nastech, Questcor would have more than $8 million in cash, cash equivalents and short-term investments.

At the same time, Questcor said its Series B convertible preferred stockholders waived certain covenants and rights to receive additional dividends that might have been triggered as a result of the acquisition. In consideration of such waivers, Questcor agreed to adjust the exercise price of warrants to purchase about 3.4 million common shares from $1.0824 apiece to $0.9412.

Its stock (AMEX:QSC) gained 4 cents Tuesday to close at $1.07, while Nastech's shares (NASDAQ:NSTK) climbed 23 cents to close at $10.45.