Drug treatment patent comes at prime time for Hythiam: award boosts plans for $26 million placement of common stock.

A patent for a cocaine treatment awarded last week to Hythiam Inc. couldn't have come at a better time for certain shareholders, given announced plans for a $26 million private placement of the company's common stock.

The Los Angeles-based provider of substance abuse treatment services said Dec. 13 that it had signed a definitive agreement to sell 3.6 million common shares at $7.30 each. After the news broke a few hours later about the U.S. Patent Office grant, shares jumped 11 percent to close at $9.35 on the Nasdaq. The unregistered shares were sold to funds affiliated with existing investors and other institutional investors.

While the following day saw some mild profit-taking, Caris & Co. analyst Gene Mannheimer noted that investors in the private placement are still likely to see a much better than initial expected return on their investment. The $7.30 price was calculated as an approximately 10 percent discount to the company's volume weighted average share price over the last 15 trading days.

"And once those shares become registered, they would be able to sell, though that's unlikely for the most part since these are long-term investors in the company," Mannheimer said.

Mannheimer and other analysts coveting the firm cheered the patent announcement as a substantial positive for Hythiam, whose stock had a hard time getting traction due to concerns that its innovative Prometa substance abuse treatment protocols for cocaine, alcohol and methamphetamine abuse could be replicated by copycats.

"We anticipate (the patent) will accelerate adoption of our Prometa protocols," said Chief Executive Terren Peizer, noting that clinical trial data expected to start coming in next year should further drive revenue growth.

The protocols involve administering three generic medications, including flumanzenil, and prescribed nutritional supplements in a specific sequence over two weekends in an effort to stop the cravings and side effects of withdrawal long enough to enable traditional counseling and group therapy to take hold.

The company also has patents pending for its other protocols, with the alcohol treatment considered the most difficult to obtain as there is existing precedent for using flumanzenil in alcohol treatment. Around half of patients currently treated at company-owned or licensed Prometa centers are for alcohol abuse, with methamphetamine abusers a small but growing client base at 20 percent.

Staff reporter Deborah Crowe can be reached at [phone], ext. 232, or at [e-mail].