By Mary Welch

Targeted Genetics Corp. raised $30.3 million in a private placement, the proceeds of which will help accelerate its preclinical programs and the clinical trials for tgDCC-E1A, its cancer gene therapy product.

"We had planned on raising $15 million but there was such a nice demand, and from some of the best institutional investors, that we decided we might as well expand the offering," said H. Stewart Parker, the company's president and CEO. "These investors are long-term investors - among the cream of the long-term investors."

The shares were purchased by Franklin Templeton Group, of San Mateo, Calif.; INVESCO Funds, of Denver; Lone Pine Capital LLC, of New York; International Biotechnology Trust, of London; and Deerfield Management Co., of New York. New York-based Chase H&Q served as placement agent. The deal is expected to close this week.

The Seattle-based company sold 2.16 million shares. Prior to this placement, it had about 34 million shares outstanding. The company's fourth-quarter and year-end financial statements will be released next week, but it ended the third quarter with $8.5 million in cash.

"Most of our burn rate is absorbed by our partners," Parker said. "Our annual burn rate is about $3 million. This placement will get us through the end of 2002, even with us accelerating our clinical development and programs."

A major portion of the financing is targeted for the company's tgDCC-E1A program. "Our most advanced trial is a Phase I/II in chemotherapy combination in ovarian cancer," she said. "It is ongoing and will finish this year. Beginning in 2001, we will start trials that will be convertible into pivotal studies."

A Phase II study of the product for head and neck cancer as a single agent is completed, and a Phase II study in combination with chemotherapy will begin this year. It, too, may be converted into a pivotal study.

Phase I studies of the E1A program for patients with unresectable or metastatic solid tumors and breast cancer are completed. Plans in other cancer indications using E1A will be finalized later this year, Parker said.

The gene therapy product consists of the therapeutic E1A gene formulated in the company's proprietary lipid-based gene delivery system. E1A is a gene that can function as a tumor suppressor.

tgDCC-E1A was developed by RGene Therapeutics, of Houston, which licensed the European rights to Laboratoires Fournier S.A., of Dijon, France. Subsequently, Targeted Genetics acquired RGene. Last year, Targeted Genetics reacquired the European rights when Fournier shifted its clinical focus.

"It was great," Parker said. "We acquired the European rights back as well as all the clinical data Fournier had done."

In addition to its cancer programs, the new funds will go toward accelerating its hemophilia A program, which is in the preclinical phase, and its cystic fibrosis program.

A paper in the March issue of Blood indicated that the company's proof of principle was validated in that an adeno-associated virus (AAV) can be used to deliver a functional form of the human Factor VIII gene. The data indicated that levels of hFVIII equivalent to up to 25 percent of normal human expression levels were obtained in all three strains of mice. Expression levels of FVIII above 1 percent of normal are known to be therapeutic, the company said.

Targeted Genetics completed a Phase I study of tgAAV-CF, which the company said is the world's first clinically tested gene therapy product based on an adeno-associated virus. The drug uses the AAV technology to deliver a normal copy of the cystic fibrosis transmembrane regulator gene to cystic fibrosis patients. The company is in a partnership with Medeva plc, of London, worth up to $54 million for this indication. Phase II trials are slated for later this year.

Targeted Genetics' stock (NASDAQ:TGEN) closed Wednesday at $23.25, up $1.875.

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