Ebb & Flow

ConjuChem (TSX:CJB) recently disclosed positive Phase I/II data for PC-DAC: Exendin-4, a once-weekly therapeutic to treat diabetes. But the company was in a bind. It only had C$19 million ($16.7 million) in cash at July 31 and was burning about C$3 million a month. Moreover, the company's balance sheet includes C$60 million of debt that matures in December 2008.

CJB was out looking to raise money, but CFO Lennie Ryer said the company got a consistent message from would-be investors. "The smart money needed to see the debt taken care of if they were to invest," he said.

The solution came during Thanksgiving week, as CJB gave away a pound of flesh - and then some - in a follow-on, but raised C$120.3 million ($105.9 million) through the sale of 185 million units at C$0.65. To address the debt, CJB committed to put C$57 million of the proceeds in an escrow account that will be used to extinguish the debt in 2008.

CJB's financing almost quintuples the company's shares outstanding, which swelled to 240 million from 55 million. "The financing was highly dilutive and some existing shareholders didn't take warmly to such massive dilution, but our alternatives were few and far between," said Ryer. "We were running on fumes."

With the non-escrowed proceeds, CJB will be able to fund further development of PC-DAC: Exendin-4. The compound is in a multi-dose Phase I/II study, for which data are expected in the first quarter of 2007. "We'd then like to quickly move into Phase II testing and also hope to put another peptide into preclinical or clinical development," said Ryer.

In the single-dose Phase I/II trial, once weekly PC-DAC: Exendin-4 reduced glucose levels from baseline. Importantly, there were no cases of vomiting in the trial - vomiting had derailed DAC:GLP-1, its previous diabetes compound.

PC-DAC: Exendin-4 would compete with Exenatide LAR from Amylin (AMLN) and Eli Lilly (LLY), which is in Phase II testing. That compound, a once-weekly version of the diabetes drug Byetta exenatide, uses Medisorb drug delivery technology from Alkermes (ALKS). CJB closed Friday at C$0.70, up $0.04 over the last two weeks

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