On Friday, December 4th, Ziopharm Oncology Inc. (ZIOP) announced a public offering of 15.5 million common shares and warrants to buy 7.7 million shares in a public offering. The deal was priced @ $3.10 per unit and netted the company approximately $45.2 million. For a micro cap, this was a large, fairly dilutive deal. Common shares now stand at 41,192,287 with a market cap of roughly $125 million.

First, the negatives--dilution, dilution, dilution. Rodman & Renshaw, LLC,was involved in the transaction. Experience tells me that they are not the most discriminating firm when it comes to stock placement. Many R & R clients are rumored to have no interest in holding positions long term, but merely flip the shares and strip the warrants in unit deals. This may explain the weak aftermarket performance of the stock. (Currently trading @ $ 3.02) Also, since the warrants are exercisable @ $4.02, there may be a short term cap on the share price. Why the big raise? With $7 million in the bank (pre-raise), I believe that Ziopharm was likely low-balled in any partnering discussions so the public offering may (in the long term) turn out to be the wise decision.

In my last article I pondered what was next for Ziopharm (ZIOP). In early September the company completed a small PIPE for approximately $5MM plus warrants for a like amount. I believe they were trying to put enough gas in the tank to safely make it to the next leg of the race.

The next leg may be upon them. On Friday, the company reported some very encouraging randomized Phase II data on its Sarcoma drug , palifosfamide (ZIO-201).The data was presented at the annual meeting of the Connective Tissue Oncology Society in Miami Beach.

This brief is a follow up to my November 17, 2008 article Ziopharm Oncology: Thinking Small. The company’s goal is to eventually develop oral formulations of its compounds which could be delivered in a cost efficient and convenient manner.

Let’s do a quick review of the company’s three drug candidates (see website for more complete descriptions.)

We all know that the majority of the small biotech companies are in the midst of the worst cash crunch in decades. Staffing is being cut, programs mothballed, and some companies have chosen to go into hibernation mode to wait out the storm. In a CNBC interview, BIO President and CEO Jim Greenwood estimated that 50% of the publicly traded biotechs have less than a year’s operating cash and 25% are down to less than 6 months.

The public markets are effectively closed to these issuers. Many of the VCs are hesitant to extend additional funds since there is no clear exit strategy. What does this mean for the future of these development stage companies? Many small biotechs are now left with only one viable option: obtain funding from Big Pharma on whatever terms are available. This funding may be in the form of a partnering agreement or an outright enterprise sale.

Generally in micro cap biotech investing, one encounters the classic "all or none" proposition: either the science works and the company flourishes or (more likely) the science fails and the investment result becomes part of an ever increasing tax loss carry forward. The very nature of VC financing encourages companies to find the next blockbuster drug in the hopes of an eventual big pharma buyout at multiples of a given market cap.

I believe that I may have found a company that is looking to take a different track. Ziopharm Oncology (ZIOP) is thinking small; they are looking to build improved versions some of the existing cancer drugs to finance bigger projects down the road. Before we examine the pros and cons of this approach,let’s take a look at their pipeline.