MGI Pharma Jumps 8% on Cancer-Drug Plans

The company will offer 4 million shares of common stock, primarily to help finance the expansion of its cancer arsenal.
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Updated from 1:08 p.m.

MGI Pharma

(MOGN)

said Monday it would offer 4 million shares of common stock, primarily to help finance the acquisition and/or licensing of cancer drugs.

The company said this effort to expand its cancer arsenal was triggered by its recent expansion of its oncology sales force to 80 from 50 to launch its new drug, Aloxi, for preventing nausea and vomiting caused by chemotherapy. The drug was approved for marketing Friday by the Food and Drug Administration.

Although addition stock offerings are often viewed by investors as dilutive, shares of MGI Pharma ended the day up 8.4%, or $2.68, to close at $34.65. The stock started out in negative territory but advanced solidly after 1 p.m.

The company's offering -- made from a shelf registration filed July 15 -- would add about $138.6 million, excluding transaction fees, based on Monday's closing price.

If there is heavy demand for MGI Pharma's shares, underwriters could offer another 600,000 shares within 30 days of the offering.

The company gave no timetable for the offering. As of June 30, Minneapolis-based MGI Pharma had 25.1 million common shares. Merrill Lynch is the lead underwriter; co-managers include U.S. Bancorp Piper Jaffray; Lazard; and C.E. Unterberg, Towbin.

MGI Pharma's shares soared 20% on Friday after the FDA gave the OK for the drug for which MGI Pharma holds exclusive North American marketing rights. Aloxi was developed by a private Swiss company, Helsinn Healthcare.

Aloxi, whose generic name is palonosetron, becomes the fourth member of the 5-HT3 drug class to be prescribed for nausea and vomiting caused by chemotherapy. MGI Pharma expects to make Aloxi available in mid-September to compete against the market leader GlaxoSmithKline's Zofran, Aventis' Anzemet and Hoffmann LaRoche's Kytril.

MGI Pharma estimates the U.S. market for this class of drugs is $1.4 billion and growing, including more than $800 million for the chemotherapy-induced nausea and vomiting segment. The other drugs also are used for preventing cancer radiation therapy-induced vomiting and nausea as well as for nausea and vomiting after surgery and anesthesia.

Lonnie Moulder, the company's chief executive and president, said MGI Pharma would not pursue the other uses of the drug "at this time," noting that the surgical- and anesthesia-related treatments require a lower dose of the drug and that his company remains focused on cancer-related therapies.

Aloxi is approved for preventing acute nausea and vomiting associated with initial and repeat doses of chemotherapy as well as for preventing delayed nausea and therapy caused by initial and repeat treatments of chemotherapy.

Aloxi offers a greater convenience of use than the other 5-HT3 treatments. Aloxi is administered intravenously to patients before they undergo chemotherapy; competing drugs also are given intravenously before chemotherapy, but patients also must take antinausea pills for several days after receiving treatment by the competitors. Analysts say Aloxi should improve patients' compliance rates.

Moulder declined to reveal the price for the drug. He said marketing efforts would focus on key cancer centers and approximately 10,000 cancer professionals. He added that the marketing efforts will include some advertising aimed at both professionals and patients.

Company executives offered little specific information Monday about the types of products or strategies linked to the upcoming offering.

Moulder said the company could acquire drugs on the market or about to be on the market, license a product (as was the case with Aloxi) or co-promote a drug. He said the oncology products sales force, for now, won't be expanded beyond 80.

And in a quarterly financial report filed Monday with the Securities and Exchange Commission, the company noted that its cash and short-term marketable investments had dropped to $48.76 million for the quarter ended June 30 compared with $60.47 million for the three months ended Dec. 31, 2002.

"Significant cash use in 2003 will be required to fund operating activities," the company told the SEC, noting that it had spent $13.93 million of cash to fund operating activities for the six months ended June 30.

This year, MGI Pharma still must pay Helsinn Healthcare $11 million for the FDA's granting approval of Aloxi, and it must pay $4.3 million to the Japanese company Dainippon Pharmaceutical as part of their agreement to cancel next month a licensing agreement for an experimental cancer drug.

"Excluding the potential favorable effect on cash from Aloxi sales, we expect annual cash use for 2003 to be approximately $50 million, which includes cash required to launch and promote Aloxi," the company said.

Moulder reiterated the company's prediction made on Friday that Aloxi should reach annual sales of $250 million approximately four years following its launch. He said the drug should yield $40 million to $55 million in sales for the first 12 months of its existence, with most coming in the first half of 2004. This year, the drug will produce $5 million to $10 million in sales.

MGI Pharma also markets Salagen tablets -- for the treatment of dry mouth caused by radiation therapy for head and neck cancers -- and Hexalen, a treatment for ovarian cancer.