Kosan Biosciences obtains $35 million credit facility

By Jennifer Chiou

New York, July 18 - Kosan Biosciences Inc. said it entered into a $35 million credit facility with Silicon Valley Bank, according to an 8-K filing with the Securities and Exchange Commission.

The Hayward, Calif., biotechnology company can make up to two draws through May 31, 2006, with the initial draw at least $15 million.

The company said each drawdown converts to a five-year term loan with a 24-month period of interest-only payments followed by fixed principal and interest payments based on an 84-month amortization schedule and a balloon payment at the end of the five-year period equal to 9.6% of the principal amount of the loan.

Loans will bear interest at a rate equal to the greater of 4.4% or the five-year Treasury note yield to maturity as of the date of the initial drawdown plus 50 basis points.

If Kosan draws down less than $35 million by May 31, 2006, it will be required to pay 0.75% of the unused amount of the credit facility.

The line of credit is secured by all of the company's assets, except intellectual property.

Covenants of the credit facility include that the company must maintain a ratio of cash and cash equivalents, investments and eligible accounts to the amount outstanding under the line of credit of at least 1.3 to 1.

Other covenants state that the company must have at least six months "remaining months liquidity," which is calculated by dividing cash and cash equivalents, investments and eligible accounts by the company's cash burn calculated on a rolling three-month basis as well as aggregate balances in its investment and operating accounts with the bank equal to the lesser of the amount outstanding under the line of credit plus $5 million and 85% of the company's aggregate cash and investment account balances.

"We were pleased to secure this line of credit, which offers us financial flexibility as we continue to advance the clinical development of our strong pipeline of anticancer drug candidates," Daniel V. Santi, chairman and chief executive officer, said in a news release.

"In addition, the terms are very competitive, including repayment terms that serve to minimize our near-term cash outflow."

Kosan Biosciences has two anticancer agents in Phase II and Phase Ib clinical trials.

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