Struggling La Jolla Pharmaceutical is selling shares of its common stock and convertible preferred stock for aggregate gross proceeds of approximately $6 million. The company has been trying to keep its head above water since it reported in February 2009 shutting down its late-stage development of Riquent in lupus nephritis.
The drug was its only clinical candidate, and the firm has not been conducting any clinical activities since. Biomarin had signed on as development partner just a month before the bad news, shelling out $15 million up front. While La Jolla lost almost 90% of its value during the first day of trading after the announcement, Biomarin fell about 4%. In March, La Jolla was delisted from NASDAQ, following which the firm nixed plans to merge with Adamis Pharmaceuticals after garnering only 13% of shareholder votes.
The $6 million is expected to come from the sale of approximately 29 million shares of common stock and 5,134 shares of convertible preferred stock, which will bear a dividend of 15% per annum. The investors will also receive a three-year warrant to purchase, for cash, an additional 10,268 shares of convertible preferred stock for an aggregate exercise price of approximately $10.3 million. Additionally, at the initial closing the investors will receive a three-year warrant to purchase, for cash or on a cashless basis, an additional 5,134 shares of convertible preferred stock for an aggregate exercise price of approximately $5.1 million. If exercised on a cashless basis, La Jolla will issue fewer shares.
La Jolla Pharmaceuticals says that developments made by other companies in systemic lupus erythematosus has not only revived enthusiasm in lupus but also interest in Riquent. The firm will use the proceeds from the stock purchase to evaluate development opportunities for Riquent in lupus and other indications as well as to find potential pharmaceutical products for in-licensing or acquisition.
If within nine months, La Jolla Pharmaceuticals has not begun work on Riquent or acquired another compound approved by the investors, the preferred shares must be paid back. If the company does succeed in getting the ball rolling in time, investors will be required to exercise the warrants.
Once the warrants are exercised, investors will receive an additional three-year warrant to purchase, for cash or on a cashless basis, an additional 10,268 shares of preferred stock on the same terms as provided in the cashless warrants issued at the initial close.
The Phase III trial closure in February 2009 came after the Independent Data Monitoring Board’s first interim analysis showed that continuing the study was futile. La Jolla points out, however, that Riquent did demonstrate a statistically significant, dose-dependent reduction in antibodies to double-stranded DNA when compared to placebo and appeared to be well tolerated. The company is thus assessing whether there is any potential for further development of Riquent.