Innovate Biopharmaceuticals Inc. is selling common shares and warrants to certain investors to fund a study of its celiac disease treatment.

The Raleigh, N.C.-based drugmaker is selling up to 4,291,845 common shares at $2.33 each and 4,291,845 12-month term warrants exercisable at $4 per share to SDS Capital Partners II LLC and certain other investors. Innovate is also selling up to 2,575,107 five-year term warrants, which will be exercisable six months after issuance.

The five-year warrants will be priced equal to 125% of the volume weighted average price of the company's common shares for the 20-day period prior to the closing of the private placement, or the closing price of Innovate's common stock immediately before the placement's closing date — whichever of the two is greater.

Innovate will also have the right to call the 12-month warrants for cash exercise if the volume weighted average price of the company's stock exceeds $5.25 for 10 consecutive days following their issue dates.

The company plans to use the proceeds to start a phase 3 trial for INN-202, its lead program for celiac disease — a disorder in which eating gluten elicits an immune response in a patient, causing damage to the small intestine.

Part of the proceeds will also be used for working capital and general corporate purposes.

Closing of the concurrent sale of common shares and warrants is expected on March 18.