Intec Pharma Paying High Premium to Underwriters

Jerusalem biotechnology company Intec Pharma is paying over 9% of the proceeds from a shares issue, intended to raise money for R&Dm to a group of underwriters. On Tuesday night Intec published a prospectus on the issue of shares aimed at raising NIS 29.25 million. The money left over after the underwriters' NIS 2,657,950 take will go toward research and development.

Intec develops improved formulations of existing drugs that have annual sales in the hundreds of millions of dollars. Company sources say that improving existing drugs is one of the most common strategies adopted by drug development companies to protect their products from patent expiration and to expand the range of indications for which a drug is intended, or to launch a new, better product.

Intec is still in the development stages; it does not generate revenues and is dependent on financing.

Underwriting is when a company issues shares, and hires somebody to market any unwanted shares to investors, while at the same time committing to buy the shares if the public is not interested.

Underwriters charge a fee for this commitment, but 9.09% is an exceptionally high rate in the capital market. The underwriters in this shares issue are Apex, Poalim IBI, Clal Finances, Meitav and Excellence Nessuah.

Underwriters are paid handsomely for participating in an issue. Despite the prospectus, the underwriters are entitled to 1% of the total sum raised. In addition, the head managers and the underwriters receive management fees of 6% of the proceeds plus a "success fee" of 10% of the difference between the price at which the shares are sold and the minimum price set for the issue.

The coordinator for the issue will be reimbursed NIS 30,000 for expenses and the company will pay an additional NIS 80,000 to cover the expenses of the managers of the consortium of underwriters.

In the first nine months of 2009 Intec lost NIS 10.5 million, slightly less than the NIS 12.9 million figure for the parallel in 2008. In all of 2007 the company lost 14.6 million.

All in all Intec has NIS 73 million in cumulative losses and expects to record further losses and needs to raise more money in the near future.

This situation, however, has not prevented the company from paying big bucksto its executives. The wage cost of board chairman Zvi Joseph was NIS 602,000 in the first nine months of 2009, for a 75% position. For CEO GioraCarni the wage cost came to NIS 1.7 million. The wage cost of deputy CEOZeev Weiss was just under NIS 1.3 million during that period. We come to awage cost of NIS 3.6 million for those three executives in just nine months.