The makeover continues at Deltagen Inc., which secured a minimum of $10 million in equity from a group of existing institutional investors, including a $5 million loan.

Three months ago the firm said it was realigning its business strategy and operations to focus on providing drug discovery tools and services. Company-wide layoffs then and last fall, as well as a reshuffling of management since then, have contributed to a new look absent of drug development at the Redwood City, Calif.-based company.

Concurrent with the appointment of Joseph Limber as president and CEO Friday, Deltagen secured the equity capital commitment. The private offering allows its investors to purchase preferred stock convertible into common stock at a 1-to-1 ratio. The preferred stock, which will be issued at a 25 percent discount to the five-day average closing price for the period ending three days prior to closing, bears no dividend, has a liquidation preference right equal to the amount invested in the preferred stock and standard antidilution protections.

"Going forward, this company is going to focus on its core technology, our platform, these knockout mice models for doing biological assays for drug research," Limber told BioWorld Today. "In the past the company had ambitions for using that technology to discover its own compounds, and had undertaken some organizational and strategic initiatives that didn't work out as planned and frankly created a lot of challenges for the company, financially and otherwise."

Deltagen's shares (NASDAQ:DGEN) traded down a penny Friday to close at 28 cents. Common shareholders also will have a chance to participate in the financing through a rights offering following the close of the equity round. Additional funding could come from such current investors on a pro rata basis and from new investors.

As part of the financing commitment, Deltagen obtained a secured bridge loan commitment from the same investors worth $5 million. The company plans to use the funding - initially from the loan and eventually from the financing once all terms have been approved - to expand its product offerings. With that in mind, Deltagen's new management is pushing initiatives to market its portfolio of information products and drug discovery tools and services, including DeltaBase, DeltaOne, target validation services in metabolism and inflammation and XenoPharm toxicology technology licenses.

"The good news about Deltagen is that this company is out selling products now, and has been for some time," Limber said. "Those products have been received by luminaries in the pharmaceutical industry that include Merck, Pfizer, Glaxo and companies of that nature. But we don't feel that we've optimized the configuration of that technology to meet their needs and make it as commercially attractive as it could be. Those are some of the things we continue to refine and will be a critical part of the redefinition of our business plan as we move forward."

The bridge loan, which can be increased to $6 million if Deltagen achieves certain events and milestones, bears an annual interest rate of 10 percent. Its principal and interest will be repaid either when the preferred equity financing closes or Aug. 31.

Under the agreement, the preferred stockholders gain the right to appoint up to three new board members. Limber, who most recently worked as CEO at Mountain View, Calif.-based Aclara Biosciences Inc., also gained a seat on the board. At the same time, Deltagen dissolved its office of chairman, which included the chairman of its board and its chief financial officer. The latter, Richard Hawkins, is resigning as the company plans to hire a new CFO in the next two weeks. Deltagen's prior CEO, William Matthews, resigned in the middle of February. In late January, a company board member and its chief operating officer both resigned as well.

"I think it's critical for us [to] get our expenses under control and configure to continue to build up revenues. We think that would put the company in very good stead and in a position to stand out," Limber said. "In the relatively near future we think we're going to end up selling more than it's costing us to make and sell these products."

Earlier in January Deltagen reduced its work force to about 200 employees, the reductions coming primarily in research and development and in administration. At the same time it unveiled plans to divest its subsidiaries in Salt Lake City and Strasbourg, France, through a sale, spin-off or shutdown. The actions were designed to reduce the company's ongoing cash expenses to about $35 million to $38 million in 2003.

Deltagen reported about $50 million in cash, cash equivalents and marketable securities as of Sept. 30. For the three-month period ended that date, the company totaled a net loss of about $48 million, up from a net loss of about $15 million for the comparable year-earlier quarter. Deltagen had lost about $86 million through nine months to that date, up from about $34 million in the first nine months of 2001.

"We are undertaking some pretty significant measures to get our costs under control," Limber said. "This company clearly was living on expenses that were excessive for the stage it is at, and we are correcting that rapidly."

The company said the inflated loss figures include about $27 million worth of charges related to the original staff reduction and realignment news first reported early last fall. (See BioWorld Today, Oct. 3, 2002.)