DRUG discovery and development company e-Therapeutics is planning to complete trials of its cancer drug ETS2101 after outlining plans to raise £40m.

The Newcastle-based business, which has been listed on the Alternative Investment Market (AIM) since November 2007, is setting aside £25m for development of its lead treatment.

Its discovery and development activity is focused on cancer and disorders of the nervous system.

The new shares will be priced at 32p, a premium of 4% to the closing mid-market price on Friday.

Irrevocable undertakings of support have been received from shareholders representing approximately 86% of the company’s equity in advance of a general meeting where approval for the issue will be sought.

Following the proposed issue, the company will have pro-forma net cash and liquid resources of approximately £48m.

Together with expected receipts from R&D tax credits and interest, these resources are intended to support all of the company’s currently planned discovery and development activities into 2017, by which time the directors believe an out-licensing deal could be concluded for ETS2101.

The company’s chief financial officer Dr Daniel Elger said: “This fundraising provides us with the resources needed for significant investment in new drug discovery and to take our lead cancer drug ETS2101 through efficacy-focused trials that could lead to a lucrative licensing deal.”

The firm made a net loss of £1.8m for the six months to the end of July 2012, compared to £1.5m in the same period a year earlier.

But the Newcastle University spin-out company said it had made significant investment in the business and has a strong balance sheet.

It is conducting trials in the UK and US for ETS2101, its most important product, and is looking to develop a further drug for the treatment of degenerative conditions such as Alzheimer’s and Parkinson’s disease.

The UK cancer drug trials are taking place at the Sir Bobby Robson Cancer Trials Research Centre at the Freeman Hospital in Newcastle.

Dr Elger is confident that sustained investment in the company and its application to drug discovery will yield new drug candidates that will drive future value in the business.

He said: “With a business like ours you will see continuing losses before any revenue. At the moment, our business model is to raise cash from financial markets to develop these ground-breaking drugs. It will be some years before we see any revenue made on the back of this. We have raised a substantial tranche of cash to invest in our drugs that potentially have a very good return for shareholders.

“It is not uncommon for really big pharmaceutical companies to pay up to £100m for cancer drugs at the stage of development that we’re taking it to.

“If the drugs go on to successfully reach the market, the biggest pay-back for shareholders will be through the drug’s royalties.”

Professor Malcolm Young, chief executive of e-Therapeutics, said: “We appreciate the continuing support of existing investors and are also pleased to have attracted significant new investors to the company.

“With our financial position secure, we are well placed to build further shareholder value based on our innovative platform and product portfolio.”