Biotech firms seek cash

July 25, 2011
Author: Martin Cash

Two Winnipeg biotech firms braved the challenging capital markets this week in attempts to raise important development funds.

Medicure Inc. completed a crucial refinancing and DiaMedica Inc. has floated a secondary share offering.

It's a bold move for both companies to even attempt financings in what continues to be an unforgiving market for biotech fundraising.

DiaMedica, a company that is developing novel treatments for Type 1 and Type 2 diabetes, is looking to raise $3.375 million with an offering of 2.7 million units at a price of $1.25 a unit.

Each unit consists of one common share and one common share warrant. The warrant is for the right to buy another share in the company for $1.50 within two years of the closing of the offering.

If the warrants become fully subscribed, the company could raise a total of about $7.5 million.

DiaMedica's shares closed up one cent to $1.28 on Friday.

If the offering is successful, the new money should be sufficient to fund DiaMedica's operations for the next 12 to 18 months.

Sometime during 2012 the company intends to launch a clinical trial for its lead product, DM-199.

Also this week, Medicure Inc. announced it has settled a troubling $32.8-million debt to Birmingham Associates Ltd. that it has been working on for close to two years.

The original loan, to an affiliate of a New York hedge fund called Elliott International, L.P., was part of $40-million financing the company closed in the final stages of Medicure's Phase 3 clinical trials of a heart drug it had been developing for 10 years.

The results of that clinical trial released in early 2008 were not substantial enough to pursue development of the drug, and the company's fortunes took a serious decline.

Interest payments on the loan were being made, but Medicure CEO Albert Friesen said it became clear close to two years ago that the company was going to have to somehow deal with the large overhang.

A firm was retained to solicit interest and Friesen said there were about 50 companies that made inquiries, with about four offers eventually materializing.

But Friesen said any of those deals would have wiped out 90 per cent of the equity of existing shareholders.

Instead, Medicure structured a deal with the help of a $5-million loan from the provincial government through its Manitoba Industrial Opportunities Program as well as the issuance of 32.6 million shares representing 17.8 per cent of the outstanding shares.

In addition, Medicure will pay Birmingham a four-per-cent royalty on Medicure's net sales of Aggrastat, a heart drug used by angioplasty patients, for which Medicure owns the American marketing rights.

MIOP loans typically require hard assets as collateral and since Medicure can't provide that, Friesen had to provide a personal guarantee to the province.

In exchange for that, the company has issued Friesen 20 million shares. Before the transaction, Friesen owned 7.4 per cent of Medicure's shares. With the additional shares, he controls 16.2 per cent.

Friesen is co-chair of the Manitoba Innovation Council and also a member of the Premier's Economic Advisory Council.

The loan settlement deal was announced Monday and Medicure's share value tripled to six cents that day. The shares closed Friday at 4.5 cents.

Share This Story