MGI Pharma Inc. on Monday lined its pockets with $21 million in a private placement, funding sufficient to cover two remaining milestone payments as part of a license agreement with Helsinn Healthcare SA.

Minneapolis-based MGI said the financing also provides adequate capital to fund operations until it achieves profitability, assuming an approval in the second half of next year for palonosetron - the subject of the Helsinn agreement.

For the year ending Dec. 31, MGI said it expects a balance of cash and short-term investments of about $60 million. The year-end figure includes the $21 million, less a $10 million milestone payment due later this month to Lugano, Switzerland-based Helsinn for the recently achieved palonosetron new drug application filing acceptance.

"This financing positions us well as we move toward the launch of palonosetron," MGI President and Chief Operating Officer Leon Moulder told BioWorld Today. "We're well positioned to fund the scale-up of our commercial organization and fully fund its successful launch of palonosetron."

MGI closed the financing agreement based on the sale of subordinated notes convertible into about 2.6 million shares of its common stock to affiliates of New York-based Deerfield Management Co., a private investment firm that invests in the healthcare sector. MGI will make interest payments at a 3 percent annual rate, with principal due Dec. 1, 2007, unless earlier converted into shares of MGI common stock in three portions with conversion prices ranging from $7 to $10.50 per share, for a weighted average conversion price of $8.17 each.

MGI also issued warrants for the purchase during the five-year period of the agreement of up to 400,000 shares of its common stock at exercise prices of $8.75 and $10.50 per share, with a weighted average exercise price of $9.625 apiece. Under the agreement, MGI is limited in its ability to enter into other financing transactions.

MGI said its near-term objective is focused on palonosetron, an agent designed to prevent chemotherapy-induced nausea and vomiting for which it submitted an NDA two months ago. In addition to the $10 million payment due to Helsinn in the coming days, MGI will pay a final $11 million following approval of palonosetron. To date, MGI has paid $17 million as part of its agreement, through which it will retain U.S. and Canadian marketing rights to the drug. Helsinn, which will earn about one-third of MGI's net sales revenue for royalties and supply costs, has funded all clinical development.

MGI said clinical studies have demonstrated the effectiveness of palonosetron, a 5-HT3 receptor antagonist with a receptor-binding affinity and an extended plasma half-life of 40 hours. Studies also have shown it to be well tolerated with adverse events similar to 5-HT3 antagonists on the market - mild to moderate headache and constipation.

A Phase III program of 1,800 patients that included three pivotal trials showed that the product met its primary and secondary endpoints.

"We previously reported that we had achieved the primary endpoint in each of those three trials, and the secondary endpoint favored palonosetron over the comparative agents in all three trials," Moulder said. "The primary endpoint is to measure complete response - no vomiting and no rescue medication over the first 24 hours after receiving chemotherapy - and in these three Phase III trials we compared palonosetron to currently marketed agents for chemotherapy-induced nausea and vomiting."

At June's Multinational Association of Supportive Care in Cancer meeting in Boston, MGI reported positive results from one of the three Phase III studies. The trial was designed to show palonosetron to be at least as effective as other such products. Data from the study, which compared palonosetron to a currently approved 5-HT3 receptor antagonist in patients receiving moderately emetogenic chemotherapy, demonstrated that a single intravenous dose of palonosetron achieved statistical significance for both primary (day one, or acute) and secondary (days two through five, or delayed) endpoints.

"We have a differentiated product with a longer half-life, much stronger binding affinity, at least as effective as the other agents in day one and more effective in the delayed nausea and vomiting setting - up to day five," Moulder said. "And with this financing we're in a position to make the final two milestone payments and fully fund the launch."

While MGI looks forward to an eventual revenue stream from palonosetron, the company already earns revenue from its Salagen Tablets (pilocarpine hydrochloride) and Hexalen (altretamine) capsules, both oncology products. Beyond such compounds, MGI is developing irofulven, a chemotherapeutic agent being studied in both Phase I and II trials as a combination treatment and monotherapy. MG98, a second-generation antisense compound, is in Phase I development and is licensed from Montreal-based MethylGene Inc. Preclinical development continues for acylfulvene analogues and DNA methyltransferase inhibitors.

MGI's stock (NASDAQ:MOGN) dropped 25 cents Monday to close at $7.50.