Lexicon secures $154.35 million from PIPE offering; Transmeridian to raise $40 million

By Sheri Kasprzak

New York, June 18 - Lexicon Pharmaceuticals, Inc. topped PIPE headlines to kick off the week, announcing an agreement to close a $154.35 million stock deal with The Invus Group, LLC.

Invus, which is seeking to move into the pharmaceutical sector, agreed to buy 34.3 million shares at $4.50 each, a 46% premium to the company's $3.08 closing stock price on Friday.

After the offering was announced Monday morning, the company's stock got off to a jump, gaining 8.77%, or 27 cents, by 9:50 a.m. ET. The stock went on to gain 7.8%, or 24 cents, to close at $3.32 (Nasdaq: LXRX). The stock fell by 5.75 cents in after-hours trading.

Invus has the option to buy up to $345 million in additional shares over the next four years.

As part of the original offering, Invus will receive warrants for 16.5 million shares, exercisable at $3.09 each, a price equal to the 10-day volume-weighted average price of the company's stock as of Thursday. The offering is subject to shareholder approval.

The offering will bring Invus' ownership of Lexicon to 40% of the post-transaction outstanding common stock.

The transaction will be submitted for approval to the shareholders in August or September.

Lexicon's product development deal

Connected to the offering, Lexicon announced plans to enter into a $60 million product-development collaboration with Symphony Capital Partners, LP.

The plan will help move Lexicon's first three drug candidates into advanced clinical development. Those candidates include LX6171 for cognitive disorders, LX1031 for irritable bowel syndrome and LX1032 for gastrointestinal disorders.

Under the terms of that transaction, $45 million was paid to Symphony Icon, Inc., a newly established company that will accelerate the development of the three drug candidates. Another $15 million in equity capital was provided to Lexicon for general corporate purposes.

Lexicon has a purchase option to retain the exclusive right to acquire 100% of the equity of Symphony Icon at a price that ranges from $72 million in the second year to $90 million in the fourth year of the collaboration period.

However, if Lexicon chooses not to exercise its purchase option, Symphony Icon retains the rights to the three drug candidates.

In exchange for the purchase option and funding, Lexicon issued 7.7 million shares at $3.14 each.

"We are implementing a long-term financial strategy that will fuel our extensive drug discovery and development pipeline," said Julia Gregory, the company's chief financial officer, in a news release.

"Taken together, the Invus and Symphony agreements substantially reduce financing risk and enhance our drug development expertise while allowing all shareholders to continue to participate in Lexicon's growth. This strong financial backing will complement Lexicon's corporate partnering strategy to accelerate the development and commercialization of our products."

"We have chosen to partner with Lexicon's talented scientists and management team because we believe that, with our commitment as a long-term shareholder with significant capital, Lexicon has the potential to become a major biopharmaceutical company," said Invus founder and president Raymond Debbane in a statement.

Located in The Woodlands, Texas, Lexicon develops treatments for human diseases.

PIPE volume climbs

In the broader market, a sellsider said Monday that volume does seem to be climbing.

"It does go in cycles," said the sellsider. "Last week, we were getting bogged down by earnings, but I don't think that's going to be an issue this week. I do think there is a market [for PIPEs]. Certainly there have been a lot of larger-than-usual offerings out there in recent months."

The market source noted that most of the exceptionally large deals are linked to merger-and-acquisition activities.

Transmeridian's offering

In other PIPE news, Transmeridian Exploration Inc. secured $40 million from an offering of junior redeemable convertible preferred stock.

Institutional investors agreed to buy 400,000 shares of 20% preferreds.

The preferreds are convertible into 16,129,032 common shares at $2.48 each.

The preferreds may be redeemed on March 15, 2012 at the liquidation preference plus accrued dividends or at 125% of the liquidation preference if there is a change in control of the company.

Of the shares, 100,000 were issued Monday. The rest will be issued in a second closing expected to close on June 25.

Proceeds will be used to satisfy the company's interest payment obligation on its 12% senior secured notes due 2010. The rest will be used for working capital and general corporate purposes.

The stock fell by 3 cents on Monday to close at $2.22 (Amex: TMY).

Houston-based Transmeridian is an oil acquisition and development company.

GSE raises $10 million

Elsewhere in PIPE news Monday, GSE Systems, Inc. announced plans to close a $10 million stock deal.

The company received commitments from two institutional investors for the purchase of 1,666,667 shares at $6.00 apiece.

The investors will also receive warrants for 166,667 shares, exercisable at $6.00 each.

The offering is expected to wrap up on June 22.

"We are very pleased to announce this financing with investors that share our excitement for the near- and long-term growth potential of our company," said John Moran, the company's chief executive officer, in a news release.

"We believe the ability to enhance our balance sheet at this time and under these attractive terms serves well all shareholders of GSE. A strong balance sheet allows us to confidently position our company to capitalize on the expanding number of opportunities before us in both our nuclear and non-nuclear business segments."

On Monday, the stock closed up 4 cents to close at $6.75 (Amex: GVP).

Baltimore-based GSE provides training to the energy, process, manufacturing and government sectors.

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