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Hemispherx, in FDA Limbo, Seeks More Cash

Hemispherx has been trying to raise money quietly even as the firm's chronic fatigue syndrome drug languishes with the FDA.

Updated from 3:02 p.m. EDT

Hemispherx Biopharma

(HEB)

has been trying to raise money quietly from institutional investors even as the delay in the approval decision for the company's chronic fatigue syndrome drug stretches beyond two weeks.

Bankers from

Rodman & Renshaw

, a health care investment bank, worked the phones last week and earlier this week, calling investors to gauge interest in raising millions of dollars for Hemispherx through an unregistered private placement, also known as a private investment in a public equity, or PIPE, transaction, according to an investor who received Rodman's sales pitch.

When those efforts failed, Hemispherx filed a new registration statement for a $150 million mixed securities shelf Tuesday night. The company must wait for the

Securities and Exchange Commission

to declare the shelf effective before it can raise money.

"Rodman called me earlier this week to see if I wanted to do a deal," said one investor contacted by a Rodman salesperson. The investor asked to remain anonymous because he continues to do business, and make money, by participating in Rodman-led deals in which he can easily flip shares of companies for quick profits.

The investor turned down this latest Hemispherx deal, however, because it meant buying Hemispherx stock that was not yet registered for sale with the SEC, which meant there was no way for him to sell the stock quickly into the open market.

Rodman's chief compliance officer Bill Iommi would not comment on the firm's fund-raising efforts on behalf of Hemispherx.

Companies often resort to so-called PIPE financings when they have no registered shares to sell or when investors are unwilling to help a company raise capital using more conventional financing deals.

"I told them they were crazy if they thought I'd buy unregistered stock with an FDA approval decision hanging over the company," said the investor.

The

TheStreet Recommends

Food and Drug Administration

was supposed to issue an approval decision on Hemispherx's drug Ampligen on May 25. On May 22, the FDA contacted Hemispherx requesting a possible delay of one or two weeks, the company says.

The FDA is barred legally from making any public statements about drugs under review so the agency has said nothing to verify Hemispherx's statement.

If the FDA needed another two weeks to review Ampligen, the agency should have announced a decision on Monday. It's now two days beyond that date with no word from Hemispherx on the fate of the Ampligen review.

Hemispherx CEO William Carter has, in the past, expressed public confidence in a full FDA approval of Ampligen, going as far as stating that drug reviews similar to Ampligen's have an 80% chance of approval.

Privately, however, the company's effort to raise money in front of the FDA decision appears to run counter to whatever Carter is saying publicly to investors. Hemispherx could conceivably raise money at much more favorable terms -- and at a higher stock price -- if the company waited until after the FDA approved Ampligen.

This is what

Dendreon

(DNDN)

did, for example, when it raised more than $200 million after its stock price jumped following the presentation of phase III Provenge data at a medical conference in late April.

Of course, if Hemispherx could be trying to raise money now because it fears the FDA will reject or otherwise significantly delay Ampligen's approval. If that occurs, the stock will almost certainly sink from its current levels, making it much more difficult to complete a financing that the company will need to stay afloat.

The shelf registration statement filed Tuesday by Hemispherx does not spell out details on the exact number of shares or type of debt the company plans to sell, only that the amount will not exceed $150 million. Once the SEC declares the shelf registration effective, Hemispherx can seek a financing deal, although the company is not obligated to do so.

Hemispherx shares were down 7.8% to $2.62 in recent trading.

Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;

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