Money will support clinical trials with Diabecell, a porcine, insulin-producing cell therapy.

Otsuka Pharmaceutical Factory, Otsuka’s research and manufacturing arm, will invest A$3 million (about $3.15 million) in Living Cell Technologies (LCT). Otsuka is now reportedly a significant shareholder of LCT, which is developing a cell implant therapy for diabetes.

LCT will use the proceeds for ongoing development of Diabecell, a porcine, insulin-producing cell product for the treatment of type 1 diabetes. Treatment involves introducing encapsulated porcine cells into the abdominal cavity of the patient in a laparoscopic procedure. LCT says its encapsulation technology negates the need for immunosuppression. The islet cells are self-regulating and efficiently secrete insulin in the patient’s body, the firm adds.

“We will begin planning for a clinical trial in Japan, which will be a natural and exciting extension to our Phase II trial in New Zealand, which is coming to conclusion,” says LCT chairman and medical director,  Robert Elliott, M.D.

LCT and Otsuka have begun talks for a collaborative research and license agreement for commercialization of Diabecell in Japan and some other Asian countriesexcluding China where LCT has an existing relationship with Jiangsu Aosaikang Pharmaceutical. The agreement would include a provision for LCT to grant Otsuka the exclusive license to become the sole agency for Diabecell Designated Centers of Excellence (DDCE) to treat patients once the product is registered in Japan and Asian countries covered by the agreement. LCT expects to conclude negotiations with Otsuka within the next six months.

Otsuka will hold 25 million shares of LCT stock in two tranches at A$0.12 (13 cents) per share. In the first tranche, LCT says, Otsuka will pay A$2.28 million (roughly $2.4 million) for 19 million shares to be issued as soon as practicable after receipt of the funds by LCT and no later than April 22.

In the second tranche, Otsuka will pay LCT A$720,000 ($756,739.64) by April 22 for an unsecured Mandatorily Converting Note which, upon shareholder approval, would be converted to 6 million ordinary shares in LCT on the next business day. Shareholders would need to approve the transaction at a general meeting no later than June 30. If shareholders do not approve the deal, the note must be repaid with interest of 7.5% per year on Dec. 31, 2011.

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