YM Biosciences prepares to close $40.4 million direct deal; Chelsea Therapeutics seals $21.5 million PIPE

By Sheri Kasprzak

New York, Feb. 14 - YM Biosciences Inc.'s stock was knocked down Tuesday as the company announced it will settle a $40,375,000 direct stock offering in the coming days.

The stock ultimately lost 11.72%, or 62 cents, to close at $4.67 (Amex: YMI). The offering was announced Tuesday morning and by 1:30 p.m. ET, the stock had already fallen 10.2%.

The company will sell 9.5 million shares at $4.25 each to a group of investors led by Great Point Partners, LLC on Friday. The shares are being sold at a 19% discount to the company's closing stock price of $5.29 on Feb. 13. The shares will be sold under YM's shelf registration.

SG Cowen & Co., LLC is the bookrunner.

Proceeds will be used for the company's drug development activities as well as for general corporate purposes.

"With an extra $40 million in the bank, YMI should have about $60 million total," said a sellside biotech stock trader. "That means 10 quarters - 2.5 years - of cash in the bank. The extra $40 million allows YMI to negotiate partnerships from a position of strength, which is great news. With the run-up, it may seem like [the direct placement price is] a huge discount but given we were at $4.00 last Wednesday, I don't have a problem with the price. I'd be a buyer here. Nothing fundamental has changed except that now we have plenty of cash to move forward and no worries for years."

Word of the direct placement comes just a day after the company announced that the Food and Drug Administration designated YM's lead drug tesmilifene as a fast track product. Tesmilifene is used in combination with anthracycline chemotherapeutic to treat advanced breast cancer.

On Monday, the company also announced its second-quarter earnings. For the quarter ended Dec. 31, 2005, YM incurred a net loss of $5,536,292 compared with a net loss of $2,830,164 for the same quarter ended Dec. 31, 2004. For the year, the company sustained a net loss of $11,460,138 compared to a net loss of $5,098,863 for 2004.

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

Biotech PIPEs seen strong

Despite the fact that biotech stocks remained mixed, one market source familiar with the sector said that the two large biotech PIPE offerings announced Tuesday are an indication that investors are still interested in the sector, albeit selectively interested.

"It's a good sign for certain, but it also demonstrates that [investors] are looking more selectively at certain companies rather than at the whole sector," the market source said.

In the broad PIPE market, volume slowed to a crawl as earnings season continued, despite substantial gains among the major stock indexes.

The Dow Jones Industrial Average topped 11,000 for the second time this year, gaining 136.07 to end at 11,028.39; the Nasdaq composite index advanced 22.36 to close at 2,262.17; and the Standard & Poor's 500 composite index rose 12.67 to settle at 1,275.53.

Chelsea's $21.5 million PIPE

Elsewhere in the biotech sector, Chelsea Therapeutics International Ltd. scored $21.5 million in proceeds Tuesday from a stock deal to fund a phase 2 clinical trial for its lead rheumatoid arthritis compound.

Great Point Partners, which participated in the YM offering, also subscribed for some of the Chelsea shares.

Chelsea issued 7,166,667 shares at $3.00 each to Healthcor Management, LP; RA Capital Management; Great Point Partners; GMT Capital; Vivo Ventures and other health care investors.

As of Nov. 1, 2005, Chelsea had 12,383,177 outstanding common shares.

Placement agent Paramount BioCapital, Inc. exercised the greenshoe for $6.5 million.

The investors received warrants for 2.2 million shares, exercisable at $4.20 each for five years.

Proceeds will be used for the clinical development of the company's CH-1504 product, for the development of additional anti-folates in the company's pipeline and for licensing clinical drug candidates. The remainder will be used for working capital and general corporate purposes.

"We had a lot of interest from our series A investors," said Simon Pedder, the company's chief executive officer, in an interview Tuesday morning. "The other part of the dichotomy is that in actively talking to the investment community, a number of people expressed an interest in investing actively in buying our stocks. We felt this would be the most rapid way of capitalizing to take our clinical and earlier preclinical stage products into our existing pipeline."

Pedder said the company is particularly interest in moving its lead compound, CH-1504, through phase 2 clinical trials.

CH-1504 is the company's compound for rheumatoid arthritis.

"Our compound is different from methotrexate [traditionally used to treat RA] because it doesn't get metabolized," said Pedder. "Because it's not metabolized, we eliminate the typical short-term tolerance and long-term safety issues normally associated with methotrexate."

The short-term tolerance issues normally associated with methotrexate include irritations of the digestive tract and one of the long-term safety concerns of methotrexates is liver damage, according to Pedder.

"It's a fantastic company developing a more tolerable formulation of methotrexate, which is the gold standard of treatment in rheumatoid arthritis," said one buysider close to the offering.

Moving to the company's latest earnings report, Chelsea incurred a net loss of $1,715,075 for the quarter ended Sept. 30, 2005, compared with a net loss of $784,437 for the same period ended Sept. 30, 2004.

"We have financed our operations since inception primarily through equity and debt financing," said the earnings report. "Our continued operations will depend on whether we are able to raise additional funds through various potential sources, such as equity and debt financing. Such additional funds might not become available on acceptable terms and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term.

"Through Sept. 30, 2005, virtually all of our financing has been through private placement of stock and debt financing. We will continue to fund operations from cash on hand and through similar sources of capital, which may include public or private financing activities."

In the earnings report, the company said based on its resources as of Sept. 30, 2005, the company would likely be conducting a private placement in the second quarter of 2006.

Pedder said in the interview Tuesday that the company conducted a placement of its series A convertible preferred stock in a family and friends financing round that closed in January 2005.

Chelsea's stock remained unmoved Tuesday, ending at $3.25 (OTCBB: CHTP).

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

Western Quebec leads Canadians

Heading up light Canadian private placement activity, Western Quebec Mines Inc. wrapped a C$2.85 million non-brokered unit deal.

The company sold 1,425,000 units at C$2.00 each.

The units are comprised of one share and one half-share warrant. The whole warrants are exercisable at C$2.25 each through Feb. 10, 2007.

The company's stock remained unchanged at C$1.90 Tuesday (Toronto: WQM).

Toronto-based Western Quebec is a gold exploration company.

Devcon stock slips

Devcon International Corp.'s stock fell on Tuesday after the company announced a $45 million convertible note offering on Monday.

The stock fell 5 cents, or 0.56%, to close at $8.85 Tuesday (Nasdaq: DEVC).

On Monday, when the deal was announced, the stock dropped 2.2%.

The note, which the company intends to issue on March 9, is convertible into a total of 45,000 series A convertible preferreds. The preferreds are convertible into common shares at $9.54 each.

In November, Devcon announced that it plans to acquire Guardian International, Inc. Guardian, based in Hollywood, Fla., develops fire and burglary alarm systems.

Devcon does not currently meet Nasdaq listing requirements because it has neglected to name an additional member to its board of directors.

Based in Deerfield Beach, Fla., Devcon provides electronic security services to commercial and residential clients.

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