By Randall Osborne

West Coast Editor

Less than two months after disclosing its plan to sell $23 million in stock through a private placement to push along its Phase IIb trial with Tovaxin for multiple sclerosis, PharmaFrontiers Corp. has closed the deal and is planning a 1-for-10 reverse stock split that would let the firm apply for a Nasdaq listing.

The money gives The Woodlands, Texas-based PharmaFrontiers enough cash to last through the third quarter of next year, said CEO David McWilliams, "enough time to get the enrollment done and the interim analysis."

About 23 million units were sold to institutional and other accredited investors at $1 each, comprising two shares of newly issued common stock and a five-year warrant to buy another share at an exercise price of 65 cents. Whether the firm will raise more money after reporting the interim data is unclear.

"We're going to be investigating alternatives, including maybe taking a partner," McWilliams said.

PharmaFrontiers' stock (OTCBB:PFTR) closed Monday at 57 cents, up 5 cents.

The Phase IIb trial with Tovaxin, the MS vaccine for which most of the stock-sale proceeds will pay, is expected to start this quarter. Funds also will be used to finish preclinical development and start human trials with the company's therapies for rheumatoid arthritis and Type I diabetes.

Touted as a drug that goes after the causes rather than symptoms of MS, patient-specific Tovaxin works along the same lines as autologous cancer vaccines, but consists of attenuated autoreactive T cells, rendered non-replicating but viable, that are intended to bring about an immune response when injected subcutaneously in a five-shot course of treatment at the start, four weeks, eight weeks, 12 weeks and 24 weeks.

That immune response is directed specifically against T cells within the patient that are self-reactive with myelin, rather than restricting all T cells from the central nervous system.

A broader approach for MS could mean trouble. Witness Tysabri (natalizumab), the compound from Cambridge, Mass.-based Biogen Idec Inc. and Elan Corp. plc, of Dublin, Ireland. The partners voluntarily pulled Tysabri off the market last year after the drug was linked to progressive multifocal leukoencephalopathy, a potentially fatal disorder, and the FDA has yet to decide whether selling can resume.

"Tysabri, we think, was a very good proof of principle for our approach," McWilliams told BioWorld Today. "When you keep these leukocytes out of the central nervous system, you do seem to have a pretty strong clinical effect, [but Tysabri] compartmentalizes all leukocytes, which is the problem, while we're honed in on a specific cell type. We don't disturb the rest of the leukocytes."

Side effects with Tovaxin thus far are fewer than with Tysabri, he added, and are limited to slight injection-site reactions.

"I think we're still easier to use," McWilliams said, though the company is refining its dosing regimen. Tysabri was given as a one-hour infusion every month, while Avonex (interferon beta-1a), also from Biogen Idec, is dosed weekly, and Copaxone (glatiramer acetate), from Teva Pharmaceutical Industries Ltd., of Jerusalem, is given daily.

"We'll probably approach the [FDA regarding Phase III trials] once we have the interim data" from the Phase IIb with Tovaxin, McWilliams said, noting that regulators thus far have allowed the company to proceed even though a Phase I/II study has yet to finish. That trial is expected to complete at the end of this year, he said.

PharmaFrontiers' RA compound is "built on the same principle as Tovaxin," except that cells are isolated from synovial fluid, in a method invented by the same scientist who came up with the MS approach. A "highly encouraging," 15-patient trial has been done in China, McWilliams said, but the data have not been released yet.

In diabetes, the company has figured out how to "take a monocyte, evolve it to a stem cell, and then into a pancreatic eyelet cell," he said. "In vitro, those data look extremely exciting."

PharmaFrontiers at the end of March reported a net loss of $19.4 million, or $1.24 per share, for 2005, compared with a net loss of $4.6 million, or 73 cents per share, for the previous year. Research and development expenses for 2005 totaled about $9.9 million (compared to about $2.5 million in 2004), due mainly to Phase I/II work with Tovaxin.

The company's board of directors has approved the 1-for-10 reverse stock split, also disclosed Monday, and will recommend shareholders give it their blessing. In the private placement, MDB Capital Group LLC in Santa Monica, Calif., acted as the exclusive agent.

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