By Mary Welch

Two biotech companies hit home runs with their initial public offerings as Lexicon Genetics Inc. got $220 million by selling 10 million shares of stock, and Tanox Inc. sold 7.5 million shares of stock to raise $213.8 million.

Lexicon, based in The Woodlands, Texas, priced its shares at $22 each, which is the lower end of its $22 to $24 price range listed in an SEC filing. The company will use the net proceeds to increase its functional genomics research efforts and expand its Human Gene Trap and OmniBank databases and library. The company also will apply the money to fund working capital, capital expenditures and other corporate purposes.

J.P. Morgan & Co. and Credit Suisse First Boston, both of New York, co-led the offering, with J.P. Morgan acting as bookrunning lead manager. CIBC World Markets and Punk, Ziegel & Co., both of New York, acted as co-managers.

Founded in 1995, Lexicon originally sought $100 million when it filed its initial public offering (IPO) in February. (See BioWorld Today, Feb. 10, 2000, p. 1.)

"Our goal was to increase our functional genomics research by tapping into the market and taking the company public," said Julia Gregory, Lexicon's executive vice president and chief financial officer. "We'll be able to take our analytical program for knockout mice and move it forward. It's time to start finding drugs."

With this offering, the company has 47.5 million shares outstanding.

The company also signed a multi-year functional genomics research agreement with American Home Products Corp., of Madison, N.J., under the company's OmniBank Internet Universal program. American Home Products (AHP) will have Internet access to Lexicon's OmniBank gene sequence database and library of 70,000 knockout mouse clones for use in determining the function of genes that represent potential drug targets.

AHP also will have access to Lexicon's custom knockout mouse program for the engineering of genetic alterations directed at specific drug targets and the option to access its Seek-Target-Validation program to determine the function and pharmaceutical relevance of selected genes.

Under a separate agreement, AHP obtained a sublicense from Lexicon to use positive-negative selection and isogenic DNA technology in its in-house research efforts.

Lexicon's Human Gene Trap database contains DNA sequences from about 50,000 human genes that have been rapidly and efficiently trapped from human chromosomes and analyzed in a relational database.

The gene trapping technology enables Lexicon to obtain DNA sequences of rarely expressed genes, identify genes contained within the DNA sequence of the chromosome and obtain DNA sequences of genes throughout the human genome at a fraction of the cost of traditional approaches, the company said.

The OmniBank database and mouse clone library contain more than 60,000 embryonic stem (ES) cell clones that are stored in liquid nitrogen freezers and identified by DNA sequence in a relational database. Each OmniBank ES cell clone can be grown into a knockout mouse.

Not wanting to be left on base, Houston-based Tanox raised $213.8 million - almost as much as Lexicon - by offering its stock at $28.50 a share. In fact, the company upped the number of shares in the offering from 7 million to 7.5 million.

CIBC World Markets Corp., of New York, was the lead manager. Robertson Stephens, of San Francisco, and Warburg Dillon Read LLC, of New York, along with Adams, Harkness & Hill Inc., of Boston, and KBC Securities NV, of Brussels, Belgium, acted as co-managers. The underwriters have an option to purchase another 1.125 million shares to cover overallotments. If exercised in full, the option would raise Tanox an additional $32.1 million.

Like Lexicon, Tanox raised more than it originally sought. Tanox, which identifies and develops therapeutic monoclonal antibodies in the areas of immunology, infectious disease and cancer, intended to raise $126 million when it filed in February. (See BioWorld Today, Feb. 4, 2000, p. 1.)

The company intends to use the net proceeds for research and development activities, as well as to fund possible acquisitions.

Tanox's most advanced product, an anti-immunoglobulin E, or anti-IgE, antibody is being developed in collaboration with Novartis Pharma AG, of Basel, Switzerland, and Genentech Inc., of South San Francisco. It has completed Phase III trials in both allergic asthma and seasonal allergic rhinitis and a biologics license application is expected to be filed in the next few months.

As of Dec. 31, Tanox had $47.2 million in cash. With 1999 revenues of $1.4 million, and a net loss of $23.3 million, the company has two products in Phase I/II trials. HU-901, a humanized anti-IgE monoclonal antibody is being tested to reduce severe allergic reactions to peanuts, and 5D12, an anti-CD40 monoclonal antibody, is being tested for Crohn's disease.

Lexicon's stock (NASDAQ:LEXG) closed Friday at $18.75, down $3.25.

Tanox's stock (NASDAQ:TNOX) closed Friday at $28.50, unchanged.