By Lisa Seachrist

Washington Editor

Gene therapy specialists Targeted Genetics Corp. and Genovo Inc. have decided to join forces and consolidate their technological expertise in a stock-swap acquisition valued at $67 million.

In addition to acquiring Genovo, Targeted Genetics announced a multi-product development and commercialization deal with Biogen Inc., a major shareholder of Genovo, worth up to $125 million.

Seattle-based Targeted Genetics will acquire privately held Genovo, of Sharon Hill, Pa., by issuing 6.63 million shares to Genovo's shareholders. The deal is valued at $67 million based on Targeted Genetics' closing stock price on Tuesday of $10.125 a share. Targeted Genetics' stock (NASDAQ:TGEN) surged 34 percent Wednesday to close at $13.562, up $3.437.

"From our standpoint, there are a number of reasons to acquire Genovo, both offensive and defensive," said H. Stewart Parker, president and CEO of Targeted Genetics. "Our technologies are quite complementary. We're happy to have Biogen as a partner and we're excited about Genovo's team. They have some excellent people and we intend to keep as many as we can."

The shares issued to make the acquisition will represent approximately 15 percent of Targeted Genetics' outstanding shares once the transaction is completed. At that time, Biogen will own 9 percent of Targeted Genetics. In connection with the transaction, Joseph M. Davie, former senior vice president of research at Cambridge, Mass.-based Biogen and member of Genovo's board of directors, will be named to Targeted Genetics' board.

The Biogen collaboration is, in effect, an extension of a 1995 collaboration between Biogen and Genovo. Biogen will pay an up-front payment of $8 million to Targeted Genetics for the company to develop up to four gene therapy product candidates over the next three years. Biogen currently has a preclinical program focusing on gene therapy using interferon beta 1-a as a therapy for glioma. The company expects to begin clinical trials with that product next year.

"This agreement really allows us to leverage our investment in this field," said Kathryn Bloom, director of corporate communications for Biogen. "With the intellectual property from both companies you have a real critical mass in this field that will enable us to more fully develop new gene therapies."

Peter Ginsberg, an analyst with U.S. Bancorp Piper Jaffray, said the deal was "important for Biogen. I think it's important because it's a sign of Biogen's interest in pursuing the oncology field."

Both Firms Bring AAV Expertise To The Table

Both companies base their intellectual property on using adeno-associated virus (AAV) to deliver genes for long-term expression. Targeted Genetics' technology allows researchers to manufacture large amounts of clinical-grade vector, Parker said. Genovo's technology, on the other hand, enables the quick production of AAV-based products that express genes in mammalian cells. The ability to quickly produce gene inserts allows Targeted Genetics to add functional genomics and target validation services to its offerings.

"We really see it as a way to open up new opportunities to the company," Parker said. "It will bring in more value for the company."

In addition, with both companies working with valid AAV technology patents, there remained a chance that Genovo on its own could have found a way to manufacture large quantities of AAV vectors without infringing on Targeted Genetics' patents. By joining forces, Parker said Targeted Genetics has avoided such a possibility.

In addition to the AAV technology, Genovo brings to the merger AAV-based product development programs in hyperlipidemia, atherosclerosis and hemophilia as well as a collaboration with Genzyme to develop viral-based products to treat lysosomal storage disorders.

Operations To Continue In Seattle, Pennsylvania

Targeted Genetics has ongoing clinical programs in cystic fibrosis and multiple cancer indications. The company has preclinical programs in hemophilia, cancer, hyperlipidemia and atherosclerosis, arthritis, lysosomal storage disorders and AIDS prophylaxis. The company is also developing other viral and synthetic gene delivery systems.

Parker said the merged company will continue to have operations in Seattle and Pennsylvania for the foreseeable future.

Biogen's stock (NASDAQ:BGEN) closed Wednesday at $59.312, up $1.437.

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