By Karen Pihl-Carey

Staff Writer

Cell Genesys Inc. directors have changed their minds over a proposed merger of the company with Genzyme General and are urging shareholders to vote against the deal.

The merger agreement remains in effect until terminated according to its terms. Genzyme has the right either to require Cell Genesys to hold a stockholder meeting vote on the merger or to terminate the agreement and receive a $15 million termination fee.

Cell Genesys said it attempted to negotiate a mutual termination of the merger agreement with Genzyme, but the two parties could not agree. The company intends to hold a stockholder meeting by early February.

The board's decision is due to a rapid climb in Abgenix Inc.'s stock price. Cell Genesys owns 22 percent of the Fremont, Calif.-based company, and its value of the equity ownership has increased by more than $230 million since the merger agreement was announced in October.

"Given the run-up in the Abgenix stock price the past few weeks, we're not surprised by [Tuesday's] announcement," said Bo Piela, spokesman for Genzyme, of Cambridge, Mass. "The two companies did not agree on how to address that market volatility. We do, however, maintain a very good relationship with Cell Genesys, and Genzyme is now reviewing various courses of action, and we anticipate making a decision about what we're going to do reasonably quickly."

Abgenix has secured some large collaborations with its XenoMouse technology and late Monday announced its intention to purchase Tokyo-based Japan Tobacco Inc.'s 50 percent interest in the technology, giving Abgenix full ownership.

The company's stock (NASDAQ:ABGX) climbed from $60.125 on Dec. 1 to its closing price Tuesday of $112, up another $5.25 for the day.

Kurt Leutzinger, vice president and chief financial officer of Abgenix, said the climb in the company's stock is recognition that large pharmaceutical companies need genomics companies and Abgenix's technology to rebuild their product pipelines.

"Their pipeline products are dwindling, they are running out of patent protection, and they need to really rebuild those product pipelines," he said. "And the fastest way to generate a product is to generate a fully human antibody. You can get to the clinic years sooner with a fully human antibody than with a small-molecule drug."

The small-molecule drugs bind with less discrimination and have higher toxicity profiles, Leutzinger said. Abgenix's XenoMouse technology uses a strain of genetically engineered mice that, once immunized with an antigen, make entirely human antibodies that cause no immunogenic response in humans.

Genzyme announced in October its plans to acquire Cell Genesys for about $350 million in a stock-for-stock exchange. (See BioWorld Today, Oct. 19, 1999, p. 1.)

Cell Genesys chairman and CEO Stephen Sherwin declined to comment Tuesday.