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Failing to Raise Cash, Targeted Genetics May Shut Down by the End of the Month

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By Doug Macron

Targeted Genetics said last week that it may be less than two weeks away from winding down its operations after failing to find desperately needed financing, a disclosure that casts doubt on the future of the firm’s preclinical Huntington’s disease program.

“We currently require additional financial resources to continue our operations after August,” the company said in a filing with the US Securities and Exchange Commission coinciding with its second-quarter earning report. Unless additional capital is raised by then, “we expect to begin the process of ceasing operations.”

And even if it is able to obtain funding, the company may still shut its doors “if we believe the amount of additional funding would be insufficient to allow us to make meaningful progress in developing our current product candidates,” Targeted Genetics added in the filing.

Among those product candidates is an siRNA-based treatment for Huntington’s disease that incorporates Targeted Genetics’ adeno-associated virus vector-based delivery technology. The effort was originally a collaboration with Sirna Therapeutics (see RNAi News, 1/14/2005), and built off of a partnership Sirna had forged in 2004 with University of Iowa researcher Beverly Davidson.

But last year Targeted Genetics acquired the full rights to the program after Merck, which acquired Sirna in early 2007, deemed it outside of its areas of interest and pulled out of the partnership (see RNAi News, 4/10/2008).

Since then, officials from Targeted Genetics have maintained that the company remains interested in moving the Huntington’s disease candidate forward, even speculating that the program could reach human trials by this year.

But a dwindling cash supply, along with a troubled economy and deflated stock price, forced the company to reevaluate this timeline; by March of this year, President and CEO Susan Robinson told RNAi News that the firm was “holding off” on advancing the program until it could secure the financing needed to keep itself afloat (see RNAi News, 3/12/2009).

Targeted Genetics has been unable to do so, however, and now is just weeks away from running out of cash. As of June 30, the firm had $2.5 million in cash.

As part of its second-quarter financials announcement, the company said that it “continues to pursue additional capital through strategic transactions, which could include the sale or license of assets, product-development collaborations, and sales of stock.

“We are actively engaged in discussions that could result in an extension of our cash horizon,” Robinson added in a statement. “We might not complete any transactions, however, and if we are not successful in the very near term at raising additional funding to support our ongoing operations, we will wind down our business or otherwise cease operations.”

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In the SEC filing, Targeted Genetics painted an even bleaker picture of its options, noting that “in the business environment today … there is extreme competition for capital to fund biotechnology businesses that do not have product sales and do not have later stage products showing high levels of efficacy in phase II clinical trials.”

At the same time, “the public and private capital markets have been experiencing extreme volatility and disruption for over a year, and the volatility and disruption have reached unprecedented levels in recent months,” the company added in the filing. “The scope and extent of the recent disruptions in the capital markets could continue to make it difficult or impossible for us to raise additional capital in public or private capital markets until conditions stabilize, and conditions may not sufficiently stabilize in the very short amount of time we have left before we reach the end of our financial resources and are forced to go out of business.”

Further complicating Targeted Genetics’ efforts to tap the public markets is the company’s failure to meet Nasdaq listing requirements. Last week, Targeted Genetics said that it received notification from the exchange that its stock has failed to regain compliance with the minimum $1 bid requirement and could be delisted in little more than a month. The company is also not in compliance with the Nasdaq’s $2.5 million shareholders’ equity requirement.

In an effort to keep its head above water, Targeted Genetics has been cutting staffers, and as of Aug. 1 had roughly 15 full-time employees, down from 68 about one year ago. At the same time, the firm said it is “evaluating whether to continue its involvement” in the Huntington’s disease program going forward and may terminate its license from the University of Iowa to the relevant technology.

Company officials did not return multiple requests for additional comment.

Q2

In the second quarter, Targeted Genetics posted net earnings of $7.3 million, or $0.36 per share, versus a net loss of $3.8 million, or $0.19 per share, a year earlier. The income reflects the second-quarter termination of a lease on the company’s Bothell, Wash., facility, which resulted in a reversal of $7.2 million in previously accrued restructuring charges.

Also contributing to the income was revenue recognized in connection with Targeted Genetics’ completion of a non-RNAi manufacturing deal with Celladon and ongoing cost-cutting measures, the company noted.

Revenues for the three months ended June 30 rose to $3.4 million from $2.2 million, again a result of the Celladon arrangement.

Research and development spending in the quarter dropped to $1.9 million from $4.2 million in the same period a year earlier, while general and administrative spending fell to $1 million from $1.8 million.

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