PARIS - Neurotech S.A. has signed an agreement with CytoTherapeutics Inc. for the acquisition of the latter's encapsulated cell technology (ECT). Under the deal, intellectual property rights to ECT are assigned to Neurotech, although CytoTherapeutics retains certain non-exclusive rights to use ECT in combination with its proprietary stem cell technology, as well as in the field of vaccines for the prevention and treatment of infectious diseases.

Neurotech is making an initial cash payment of $3 million to CytoTherapeutics, of Sunnyvale, Calif., and further down the road will pay royalties on sales of products derived from ECT and a portion of its future revenues from third parties. The French company is developing cell-based therapies for disorders of the central nervous system (CNS) and ophthalmological diseases and described the acquisition of ECT as a major advance in its strategy of expanding its technology base.

Neurotech CEO Tom Shepherd said the deal will not only yield "a remarkable synergy" through the coupling of CytoTherapeutics' cell encapsulation technology with Neurotech's cell line technology and expertise in neurology/ophthalmology, but "also establishes a U.S. presence for Neurotech, a key step in our overall strategy of growth."

For CytoTherapeutics, the deal brought both short-term and long-term advantages, said Richard M. Rose, president and CEO. In the near term, shareholders would benefit from the cash infusion, which would be used to fund the company's stem cell research programs, Rose said. Later on the development of ECT technology by Neurotech could generate "an additional stream of revenues associated with new partnerships related to ECT and ECT product sales," he added.

Neurotech's therapies are targeted at three CNS disorders - brain cancer, stroke and neurodegenerative diseases - as well as eye conditions such as age-related macular degeneration and retinitis pigmentosa. Its core technology is based on proprietary immortalized endothelial and epithelial cell lines, derived from brain and retina cells respectively, that are genetically manipulated to produce in vivo therapeutic agents. Its lead compound, NTC-121, is an endothelial cell vector which is being developed for the treatment of brain cancer. It has completed in vivo efficacy studies in animal models and is about to enter Phase I clinical trials in Europe in patients with recurrent high-grade glioma.

Neurotech, which is now based at the Ginoptle biotechnology business and science park at Evry, south of Paris, was set up in 1995 with initial funding of FFr17.5 million (US$3 million). In November 1998, the company completed a second funding round that raised FFr82 million (US$14.5 million) from a group of European venture capitalists. Six new investors provided about 70 percent of the total: 3i plc of London (lead investor), Antwerp, Belgium-based GIMV, IMH of Hannover Germany, Private Equity Holdings AG, of Zug, Switzerland, Sudinnova of Lyon, France, and Banque de Vizille, of Lyon, France. The other 30 percent was provided by the four French venture capital funds that provided Neurotech's seed capital - Atlas Venture, CDC Innovation, Sofinnova Partners and Codexi.