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A Little Funding for Pharmasset

It wasn't the biggest call for cash in the specialty pharma sector, but development-stage drugmaker Pharmasset (Nasdaq: VRUS  ) raised $10 million via a debt financing on Friday.

Shares of Pharmasset have been on fire since its potential hepatitis C-fighting antiviral compound produced strong phase 1 clinical trial results in January. Like all money-losing drugmakers without a compound on the market, Pharmasset needs to raise cash to continue developing its pipeline of other hepatitis and anti-HIV compounds.

The loan Pharmasset received Friday was the second $10 million of a three-part loan agreement for up to $30 million that it signed last year. With the new funds on its balance sheet, in addition to $63 million that it had at the end of 2007, Pharmasset said its cash will last another 18 months.

Pharmasset is competing against other drugmakers like Schering-Plough (NYSE: SGP  ) and Wyeth (NYSE: WYE  ) in trying to develop the first antiviral hepatitis C compound. Its hepatitis C polymerase inhibitor, which it's developing with Roche, is set to begin phase 2b testing in the fourth quarter, if all goes according to plan.

How a development-stage drugmaker handles its cash-and-burn rate can be a bellwether about what sort of steward it will be with shareholder cash if its drugs ever do get approved and the money starts flowing. This is why investors should always follow how wisely a development-stage drugmaker uses its cash.

After all, finding a drugmaker with a valuable pipeline is only half the battle. Making sure it takes advantage of its assets without overspending is just as important, as can be seen when a drugmaker squanders its funding and paints itself into a corner.

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