Pro-Pharmaceuticals gears up to settle $10 million debenture deal; biotech sector dominates PIPEs

By Sheri Kasprzak

New York, Feb. 15 - For the second straight session, biopharmaceutical issuers dominated the private placement market, this time with Pro-Pharmaceuticals, Inc. leading the pack with a $10 million convertible debenture offering.

Pro-Pharmaceuticals expect to issue the 7% debentures to a group of institutions in the coming days.

The debentures are due Jan. 1, 2008 and are convertible into common shares at $3.35 each. The investors will receive warrants for 1.5 million shares, exercisable at $3.35 each for five years.

As of Nov. 10, the company had 27,315,411 outstanding common shares.

Rodman & Renshaw, LLC was the placement agent.

"The real significance of the offering is that it gets the company to a drug without additional financing," said a New York-based sellside trader. "It looks like management figured out how to negotiate with financiers. I hope they can figure out how to negotiate with Big Pharma.

"I think this is the bad in the news - this financing somewhat shows their inability to get a deal with Big Pharma. Do they have the goods or not? Big Pharma isn't seeing the vision, but they convinced the financiers. In my opinion this is fantastic news, but I'm not sure how the market will react. The stock should go higher in the short term. They bought themselves some breathing room."

Indeed the company's stock did climb Wednesday, but only slightly. The stock advanced a penny, or 0.33%, to end at $3.06.

Moving to the company's latest earnings report, Pro-Pharmaceuticals reported a net loss of $1.68 million for the quarter ended Sept. 30, 2005, compared with a net loss of $1,763,000 for the same quarter of 2004.

Based in Newton, Mass., Pro-Pharmaceuticals develops treatments for cancer.

In the broader PIPE market, biotech and biopharmaceutical companies continued to dominate activity as the major stock indexes climbed on slumping oil prices.

The activity in the biotech sector has come despite a less-than-stellar performance among drug stocks, said one market source familiar with the sector.

"It really does seem to be coming on a company-by-company basis," he said. "I would imagine that once pharma stocks get a bit stronger, we'll see even more. There is a great demand, obviously."

Meanwhile, the Dow Jones Industrial Average, coming off of a three-digit gain on Tuesday, advanced by another 30.58 to close at 11,058.97. The Nasdaq composite index moved ahead 14.26 to end at 2,276.43, and the Standard & Poor's 500 composite index edged up 4.47 to settle at 1,280.00.

Stem Cell's placements

Heading back to the biotech sector, Stem Cell Innovations, Inc. announced the completion of two offerings Wednesday, both of which are connected to the company's merger with Amphioxus Cell Technologies, Inc.

The largest was a $2.35 million convertible note deal.

The zero-coupon note is due in three years and is convertible into common shares at $0.03 each. The note investors will receive warrants for 39,166,666 shares, exercisable at $0.06 each for five years.

Also on Wednesday, Stem Cell completed the sale of 4,878.3333 shares of series 1 convertible preferred stock at $300.00 each for proceeds of $1,463,500. Each preferred is automatically convertible into 10,000 common shares once the company authorizes the issuance of sufficient shares to cover the conversion.

As of Nov. 1, parent company Interferon had 37,339,286 outstanding common shares.

Investors in the preferreds offering received warrants for 24,391,666 shares, exercisable at $0.06 each for five years. The preferreds pay annual dividends equal to $0.10 per share.

Broadband Capital Management LLC was the placement agent.

Under the terms of the merger, Stem Cell, a wholly owned subsidiary of Interferon Sciences Inc., merged with Amphioxus. Holders of Amphioxus's common shares were issued series 1 preferreds which are automatically convertible into 757,821,430 shares of Stem Cell once the additional shares are authorized.

Interferon reported a net loss of $205,543 for the quarter ended Sept. 30, 2005, compared with a net loss of $178,271 for the same quarter ended Sept. 30, 2004.

On Wednesday, Interferon's stock dropped 11.11%, or 2 cents, to end at $0.16 (OTCBB: IFSC).

Based in Scotch Plains, N.J., Stem Cell develops a human liver cell line for toxicology testing.

Exxel prices C$45 million deal

In Canada, Exxel Energy Corp. arranged a C$45 million unit offering, even as oil prices dove below $58 per barrel Wednesday.

Oil lost $1.92 to end the day at $57.65 per barrel.

Meanwhile, Exxel said it intends to sell up to 15 million units of one share and one quarter-share warrant. Each whole warrant allows for the purchase of another share at C$3.75 each for five years.

The offering was announced Wednesday afternoon, sending the company's stock down 10.71%, or C$0.45, to close the day at C$3.75 (TSX Venture: EXX).

Proceeds will be used for drilling and exploration on the company's existing properties, for property acquisitions and for working capital.

Based in Montreal, Exxel is an oil and natural gas exploration company.

Over in the gold sector, Lakota Resources Inc. priced a C$3 million unit offering of 10 million units Wednesday.

The non-brokered deal includes units of one share and one warrant. The warrants are exercisable for two years at C$0.36 each.

Proceeds from the deal, which is scheduled to close March 3, will be used for exploration on the company's Tanzanian gold properties and for general corporate purposes.

The company's stock remained unmoved Wednesday at C$0.35 (TSX Venture: LAK).

Based in Toronto, Lakota is a gold exploration company.

YM Biosciences stock slips 4.5%

After announcing the imminent completion of a $40,375,000 direct placement on Tuesday, YM Biosciences Inc.'s stock fell by almost 4.5% Wednesday.

The stock lost 21 cents to close at $4.47. On Tuesday, when the deal was announced, the company's stock fell 11.72% (Amex: YMI).

The company intends to sell shares at $4.25 each to a group of investors led by Great Point Partners, LLC on Friday.

Based in Mississauga, Ont., YM develops treatments for cancer.

Chelsea stock advances

Chelsea Therapeutics International Ltd., another pharmaceutical company with a PIPE in the market on Tuesday, saw its stock climb on Wednesday.

The company's stock gained 8.31%, or 27 cents, to close at $3.52 (OTCBB: CHTP).

The stock had had remained unchanged at $3.25 Tuesday.

Chelsea, in the private placement, sold shares at $3.00 apiece to a group of institutional investors.

Based in Charlotte, N.C., Chelsea Therapeutics is a biopharmaceutical company focused on treatments for cancer, rheumatoid arthritis and psoriasis.

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