Editor

It seemed bound to happen.

Getting ready to sign a partner in Europe for Dynepo (epoetin delta), its version of erythropoietin, Transkaryotic Therapies Inc. had been bracing an eager market for data from the pivotal Phase III trial with another therapy - iduronate-2-sulfatase for Hunter syndrome, expected in the second half of 2005, with Phase I/II data due about the same time from the open-label Phase I/II trial testing of yet another enzyme-replacement therapy, GA-GCB in Gaucher's disease.

Investigators had been saying positive things about the Hunter trial. TKT had been beefing up its European efforts, adding key personnel overseas. Since about the third week of March, the company's stock had been steadily rising.

The stage was set for either a European Dynepo partner, as expected - or an outright takeover, especially by an overseas firm.

Rumblings had begun a while back, after highly regarded Michael Astrue, formerly a senior vice president at TKT - and once viewed as a contender for head of the FDA - took over as the company's CEO in February 2003. The acquisition talks eventually died down, but rumor mills began churning again when the stock rose an eye-opening $3 two Fridays ago, and jumped another $1.50 last Monday.

So the bid by Shire Pharmaceuticals Group plc disclosed Thursday to buy out TKT for $1.6 billion in cash, or $37 per share, might have failed to surprise at least some people. Still, Wall Street rewarded TKT with another 15 percent-plus jump, putting the shares at a closing price at $35.21, more in line with the new valuation set by Shire. The deal is expected to close during the third quarter, pending approval by both companies' shareholders and regulatory agencies.

If the deal goes through, UK-based Shire will inherit a few problems, among them TKT's long-standing fight with Amgen Inc. over erythropoietin (EPO) patents, which most recently saw TKT lose a round to Amgen when a federal judge in October upheld four Amgen claims. The court ruled that the company's patents are valid and have been infringed by TKT. That decision in a U.S. district court dealt with issues remanded by an appeals court, having to do with two Amgen patents on the product itself and two related to making EPO, a treatment for anemia in kidney disease patients who are on dialysis.

But TKT seemed unhurt by the news, probably due to excitement over the Hunter drug.

Named in Amgen's action along with TKT (which vowed to appeal the latest ruling) was partner Aventis Pharma AG. TKT's Dynepo is gene-activated EPO, developed in the U.S. with Sanofi-Aventis Group. Amgen, of course, has Epogen (epoetin alfa), which Johnson & Johnson markets under the trade name Procrit.

"They've got some noise with Amgen still, but everybody thinks that's a dead case," acknowledged Caroline Stewart, senior biotechnology analyst with the Independent Research Group. "I didn't think [TKT was] going to win, but if they had, they would have changed the landscape of biotech."

Shire officials must have been able to put aside rather easily the ongoing U.S. battle over EPO, given the drug's lucrative chances overseas. TKT expects to launch Dynepo in the European Union in 2006, and a licensing deal outside of North America is part of the proposed acquisition.

"The key here is that the oncology market is a more level playing field, with tremendous growth potential, and it's not well-penetrated in Europe," Stewart said.

TKT already sells Replagal (agalsidase alfa), an enzyme-replacement therapy for Fabry's disease, in Europe. That treatment, too, once was the focus of a court squabble in the U.S., where Genzyme Corp. warred for the position with its Fabrazyme (agalsidase beta) for Fabry's. TKT ultimately gave up efforts to win FDA approval after gaining market clearance in 27 countries, and the FDA gave its nod to Genzyme's drug.

Management of TKT "did a good job of making this a turnaround" after the Replagal fiasco in the U.S., Stewart said.

As of January, though, the companies were doing battle again - then in Israel over GA-GCB (glucocerebrosidase). Genzyme claims its Israeli patent covers novel culture processes that have been critical in enabling the company to produce the approved drug Cerezyme (imiglucerase) for Gaucher's disease - and accuses TKT of importing into Israel and using the GA-GCB product made by those protected processes.

"I just don't think the rest of the world is all that sympathetic toward Genzyme," Stewart said.

Maybe not. A judge has denied Genzyme's request that TKT's drug supply be seized and destroyed. Genzyme does not own the gene, protein or manufacturing process for Cerezyme, which is made from Chinese hamster ovary cells.

Legal face-offs with other companies aside, TKT has a strong pipeline to tempt the likes of Shire, the UK's third-largest pharmaceutical company. Several new enzyme-replacement therapies could enter the clinic during the next few years, each taking aim at a market of at least $200 million. Among the analysts to favor TKT is Jennifer Chao with Deutsche Bank Securities, who projected TKT to turn earnings-positive in fiscal year 2006 with earnings per share of 54 cents on revenues of $203 million.

"TKT remains our top small/mid-cap biotech pick," she wrote in a research note several days before the Shire deal became public.

If there's a weak point, it might be Replagal, at least in the near term. TKT and Genzyme (with Fabrazyme) seem to have hit most of the available market, but Chao called further Replagal sales - expected to hit $118 million in 2006 - "a function of patient identification." Females and children with less severe disease, for example, could benefit from therapy, and might be more likely to choose Replagal because of its 20-minute to 40-minute infusion schedule, more convenient than Fabrazyme's.

TKT is tracking Replagal patients with its Fabry Outcome Survey, which lists a growing database of 688, with 401 getting Replagal, and 287 more identified at 74 centers worldwide. Some 150 of the patients have been on Replagal for more than three years. Recruitment of females to the database has been increasing, and the group includes about 107 children.

Stewart also sees some "overhang" for TKT regarding the SEC probe disclosed in May 2003, regarding disclosures and public filings related to Replagal. The investigation is focused on the former CEO personally, as well as the company, she noted.

"We haven't heard anything about it [recently], and apparently it's not an issue for Shire," Stewart said. "It's not like the SEC is going to say, Close your doors forever.' At worst they'll get slapped with a little monetary fine, but it would be nicer to get it out of the way."

Otherwise, the risk is with Dynepo. "The landscape is so competitive there," she said. "You've got J&J, Amgen and Roche." F. Hoffmann-La Roche Ltd. has its version of EPO called NeoRecormon (epoetin beta), and might enter the U.S. market in 2006 with a continuous erythropoiesis receptor agonist (CERA), another longer-acting form of EPO. J&J's European EPO is brand named Eprex (epoetin alfa).

"TKT obviously wouldn't have the sales force to build out to hit the oncology area [in Europe]," Stewart said, adding that the four EPO competitors likely are to remain the only players for a while.

"People talk about follow-on biologics, but I think they are a while in coming," she said, pointing to last year's failed attempt by Sandoz Ltd., a subsidiary of Novartis AG, to get its Omnitrope - a generic version of human growth hormone - approved. The FDA joined the European Union in refusing to clear the product, even though the agency didn't find "any deficiencies in the application." In turning thumbs down, the agency said it could not reach a decision because of uncertainty regarding scientific and legal issues.

Some grumping about the premium to be paid by Shire was heard overseas, but "TKT investors did well" with the proposed deal, Stewart said. While the company boasts impressive niche products, no blockbuster is in the offing. For that, "they need critical mass, and I think that's what Shire can give them," she said. "They're on the verge of becoming great."