SecProbe.io

CORRESP
1
filename1.htm

    Via
      EDGAR

    July
      12,
      2007

    Mr.
      Jeffrey Riedler

    Assistant
      Director

    Division
      of Corporation Finance - Mail Stop 6010

    United
      States Securities and Exchange Commission

    Washington,
      D.C. 20549

            Re:

              Novelos
                Therapeutics, Inc.

    Registration
      Statement on Form SB-2, Amendment 2

    Filed
      June 26, 2007

    File
      No.
      333-143263

    Dear
      Mr.
      Riedler:

    Set
      forth
      below are our responses, on
      behalf
      of Novelos Therapeutics, Inc. (the “Company”), to
      the
      comments contained in the letter of the staff (the “Staff”)
      of the
      Division of Corporation Finance of the Securities and Exchange Commission dated
      July
      3,
      2007
      to Mr.
Harry
      Palmin,
      Chief
      Executive Officer of the Company (the “Comment
      Letter”),
      with
      respect to the above-referenced filing. For
      your
      convenience, we have repeated the Staff’s comment below in bold face type.
Except
      as
      otherwise indicated, all statements contained herein concerning factual matters
      relating to the Company are based on information provided to us by the
      Company.

              1.

              We
                note that you are registering the sale of 23,400,000 shares. Given
                the
                size relative to the number of shares outstanding held by non-affiliates,
                the nature of the offering and the selling security holders, the
                transaction appears to be a primary offering. Because you are not
                eligible
                to conduct a primary offering on Form S-3 you are not eligible to
                conduct
                a primary at-the-market offering under Rule
                415(a)(4).

              If
                you disagree with our analysis, please advise the staff of the company's
                basis for determining that the transaction is appropriately characterized
                as a transaction that is eligible to be made under Rule 415(a)(1)(i).
                In
                your analysis, please address the following among any other relevant
                factors:

              ·

              The
                number of selling shareholders and the percentage of the overall
                offering
                made by each shareholder;

              ·

              The
                date on which and the manner in which each selling shareholder received
                the shares and/or the overlying
                securities;

              ·

              The
                relationship of each selling shareholder with the company, including
                an
                analysis of whether the selling shareholder is an affiliate of the
                company;

              ·

              Any
                relationships among the selling shareholders;

              ·

              The
                dollar value of the shares registered in relation to the proceeds
                that the
                company received from the selling shareholders for the securities,
                excluding amounts of proceeds that were returned (or will be returned)
                to
                the selling shareholders and/or their affiliates in fees or other
                payments;

              ·

              The
                discount at which the shareholders will purchase the common stock
                underlying the convertible securities (or any related security, such
                as a
                warrant or option) upon conversion or exercise;
                and

              ·

              Whether
                or not any of the selling shareholders is in the business of buying
                and
                selling securities.

    The
      Company believes that this offering is a “true” secondary offering that is
      eligible to be made on a shelf basis under Rule 415(a)(1)(i). The limited
      circumstances under which the Staff has taken the position that an offering
      styled as a secondary offering is really a disguised primary offering made
      on
      behalf of the issuer entail situations in which the selling stockholders were
      acting as a conduit for the issuer or where the securities sold were deemed
      to
      be of a “toxic” nature such as so called “death spiral” convertible securities
      or equity lines which feature “at the market” conversions or issuances. Relevant
      factors include the length of time the selling stockholders have held their
      shares, the circumstances under which the selling stockholders received their
      shares, the selling stockholders’ relationship to the issuer, the amount of
      shares involved, whether the selling stockholders are in the business of
      underwriting securities and whether the securities feature “at the market”
conversions or issuances.

    We
      do not
      believe that the facts and circumstances involved in this offering bear any
      resemblance to those outlined above. The following is a summary of the facts
      and
      circumstances surrounding the offering of the shares by each selling stockholder
      covered by the Form SB-2, as well as the basis for the Company’s determination
      that the securities do not have provisions which would deem them as “toxic” and
      that each selling stockholder is not acting as a conduit for the
      Company.

            A.

              THE
                SECURITIES ISSUED BY THE COMPANY ARE NOT
“TOXIC”

    On
      May 2,
      2007 the Company sold 1,500 shares of the Company’s Series B Convertible
      Preferred Stock (the “Series B Preferred Stock”) and warrants (the “Warrants”)
      to purchase 7,500,000 shares of the Company’s common stock, par value $.00001
      per share (“Common Stock”) to (i) Xmark Opportunity Fund, L.P. (“Xmark LP”),
      Xmark Opportunity Fund, Ltd. (“Xmark Ltd”), Xmark JV Investment Partners LLC
      (“Xmark LLC” and together with Xmark LP and Xmark Ltd, the “Xmark Entities”),
      (ii) Caduceus Master Fund Limited, Caduceus Capital II, L.P., UBS Eucalyptus
      Fund, L.L.C., PW Eucalyptus Fund, Ltd. and HFR SHC Aggressive Master Trust,
      entities associated with Orbimed Advisors (collectively, the “Orbimed
      Entities”), (iii) Knoll Capital Fund II Master Fund, Ltd. and Europa
      International, Inc. (collectively, the “Knoll Entities”), and (iv) Hunt
      BioVentures, L.P. (“Hunt”) (the Xmark Entities, Orbimed Entities, Knoll Entities
      and Hunt, collectively, the “Series B Purchasers”) in a private placement (the
“Private Placement”). The conversion price of the Series B Preferred Stock and
      the exercise price of the Warrants are fixed at $1.00 and $1.25, respectively.
      These prices do not change as a result of any change in the market price of
      the
      Company’s Common Stock nor as a result of any subsequent issuance of Common
      Stock at a price less than the applicable conversion or exercise price. The
      only
      adjustment in price occurs in the event of a stock dividend, stock split or
      similar action which affects all outstanding shares of Common Stock equally.

    Although
      both the conversion price of the Series B Preferred Stock and the exercise
      price
      of the Warrant were less than the closing price of the Company’s Common Stock on
      May 2, 2007, the conversion price and the exercise price reflect the results
      of
      the full negotiation of the terms of the Series B Preferred Stock and the
      Warrants which provide for mandatory conversion and forced exercise,
      respectively as described below. If there is an effective registration statement
      covering the shares of common stock underlying the Series B Preferred Stock
      and
      the volume weighted average price (“VWAP”), as described more fully in the
      Series B Certificate of Designations, of the Company’s common stock exceeds
      $2.00 for 20 consecutive trading days, then the outstanding Series B Preferred
      Stock will automatically convert into common stock at the conversion price
      then
      in effect. In addition, if there is an effective registration statement covering
      the shares underlying the Warrants and the VWAP of the Company’s common stock
      exceeds $2.25 for 20 consecutive trading days, then on the 31st
      day
      following the end of such period any remaining Warrants for which a notice
      of
      exercise was not delivered shall no longer be exercisable and shall be converted
      into a right to receive $.01 per share. The Company believes that this mandatory
      call provision significantly limits the value of the Warrants.

        -2-

    The
      Company understands that the Series B Purchasers are viewed in the capital
      markets both as long term investors in the biopharmaceutical space and as
      investors that do not engage in trading activities to which the Commission
      deems
      manipulative or otherwise illegal. The Series B Purchasers engaged in an
      extensive due diligence exercise regarding the Company’s business, intellectual
      property assets and management evidencing a long term investment perspective
      rather than an immediate monetization objective inherent in the “toxic”
issuances.

            B.

              THE
                NUMBER OF SHARES REGISTERED IS NOT SO LARGE AS COMPARED TO THE NUMBER
                OF
                OUTSTANDING SHARES HELD BY
                NON-AFFILIATES

    The
      Series B Purchasers

    The
      Series B Purchasers are seeking to register 15,000,000 shares of Common Stock
      issuable upon conversion of the Series B Preferred Stock that they purchased
      in
      the Private Placement. The total number of outstanding shares of Common Stock
      held by non-affiliates is approximately 36,922,000 shares. All such shares
      have
      either been registered under the Securities Act of 1933, as amended (the “Act”),
      or are transferable without restrictions under the Act because they have been
      held for at least two years. Thus, the 15,000,000 shares of Common Stock that
      the Series B Purchasers are seeking to register represent approximately 40%
      of
      the Company’s issued and outstanding shares of Common Stock which are freely
      tradeable and held by non-affiliates. In addition, since the conversion price
      of
      the Series B Preferred Stock is subject to adjustment only for stock dividends,
      stock splits or similar capital reorganizations, this percentage would not
      be
      subject to increase.

    The
      Series B Purchasers are also seeking to register 7,500,000 shares of Common
      Stock which are issuable upon exercise of the Warrants. The Warrants have an
      exercise price of $1.25 per share and expire in May 2012. The additional
      7,500,000 shares of Common Stock that the Series B Purchasers are seeking to
      register represent approximately 20%, and when combined with the 15,000,000
      shares underlying the Series B Preferred Stock, 60% of the issued and
      outstanding shares of Common Stock which are freely tradeable and held by
      non-affiliates. The Warrant exercise price and/or number of Warrants is subject
      to adjustment only for stock dividends, stock splits or similar capital
      reorganizations so that the rights of the Warrant holders after such event
      will
      be equivalent to the rights of warrant holders prior to such event. Therefore,
      as in the case of the Series B Preferred Stock, the number of shares of Common
      Stock issuable upon exercise of the Warrants would not be increased in the
      event
      of future issuances of the Company’s stock.

    The
      Xmark
      Entities seek to register the offer and sale of an aggregate of 6,000,000 shares
      of Common Stock pursuant to the Form SB-2. The shares offered by the Xmark
      Entities and the percentage of those shares, for the individual entities as
      well
      as the Xmark Entities as a whole, in relation to the total shares offered is
      shown in the following table:

        -3-

              Shares
                Underlying

              Selling
                Stockholder

              Series
                B

              Preferred
                Stock

              Warrants

              Total
                Shares

              Portion
                of Offering

              Xmark
                Opportunity Fund, L.P.

              1,000,000

              500,000

              1,500,000

              6.4

              %

              Xmark
                Opportunity Fund, Ltd.

              2,000,000

              1,000,000

              3,000,000

              12.8

              %

              Xmark
                JV Investment Partners LLC

              1,000,000

              500,000

              1,500,000

              6.4

              %

              Total
                Xmark Entities

              4,000,000

              2,000,000

              6,000,000

              25.6

              %

    The
      Orbimed Entities seek to register the offer and sale of an aggregate of
      7,500,000 shares of Common Stock pursuant to the Form SB-2. The shares offered
      by the Orbimed Entities and the percentage of those shares, for the individual
      entities as well as the Orbimed Entities as a whole, in relation to the total
      shares offered is shown in the following table:

              Shares
                Underlying

              Selling
                Stockholder

              Series
                B

              Preferred
                Stock

              Warrants

              Total
                Shares

              Portion
                of Offering

              Caduceus
                Capital Master Fund Limited

              2,000,000

              1,000,000

              3,000,000

              12.9

              %

              Caduceus
                Capital II, L.P.

              1,300,000

              650,000

              1,950,000

              8.3

              %

              UBS
                Eucalyptus Fund, L.L.C.

              1,300,000

              650,000

              1,950,000

              8.3

              %

              HFR
                SHC Aggressive Master Trust

              250,000

              125,000

              375,000

              1.6

              %

              PW
                Eucalyptus Fund, Ltd.

              150,000

              75,000

              225,000

              1.0

              %

              Total
                Orbimed Entities

              5,000,000

              2,500,000

              7,500,000

              32.1

              %

    The
      Knoll
      Entities seek to register the offer and sale of an aggregate of 6,000,000 shares
      of Common Stock pursuant to the Form SB-2. The shares offered by the Knoll
      Entities and the percentage of those shares, for the individual entities as
      well
      as the Knoll Entities as a whole, in relation to the total shares offered is
      shown in the following table:

              Shares
                Underlying

              Selling
                Stockholder

              Series
                B

              Preferred
                Stock

              Warrants

              Total
                Shares

              Portion
                of Offering

              Knoll
                Capital Fund II Master Fund, Ltd.

              2,000,000