By Lisa Seachrist

Washington Editor

Gene-delivery specialist Targeted Genetics Corp. teamed up with drug-delivery expert Elan Corp. plc to create a joint venture expected to be named Emerald Gene Systems.

The goal of the new company, which will be an 80.1 percent-owned subsidiary of Seattle-based Targeted Genetics, will be to develop technologies to enhance the delivery of therapeutic genes. For at least the next three years, Emerald will serve as Elan's exclusive effort in the area of gene delivery.

"We see this venture as confirmation of our strategy to develop both viral and non-viral vectors for gene delivery," said H. Stewart Parker, president and CEO of Targeted Genetics. "Elan really wanted to deal with one company for gene delivery. We are pleased it was with us. It gives us the potential to build a powerful platform of enhanced gene-delivery systems."

Targeted Genetics' stock (NASDAQ:TGEN) jumped 37 percent on the news Monday to close at $2.312, up 62.5 cents. Dublin, Ireland-based Elan's stock (NYSE:ELN) closed at $27, down 93.75 cents.

Under terms of the joint venture, Elan made an initial $5 million investment in Targeted Genetics' common stock at a premium to market prices. The companies haven't disclosed the exact number of shares that Elan purchased. In addition, Elan will make another $5 million purchase of common stock in one year, also at a premium to the prevailing market price at the time.

David Schubert, director of communications and strategic relations for Targeted Genetics, said, "Elan will be a very large owner of this company as we move forward with this venture."

Elan also purchased $12 million of Targeted Genetics convertible exchangeable preferred stock. Targeted Genetics will use the proceeds to fund its initial investment in Emerald. Elan will have the right to either convert the preferred stock into common shares or to exchange it for increased ownership in Emerald, up to 50 percent.

"This is an investment tool that Elan has used in the past," Parker noted. "It allows them to fund the venture and bring ownership up to parity later."

Elan also is making available to Targeted Genetics $12 million in convertible debt financing, which the company may draw down as needed. Targeted Genetics estimated it will have cash available to fund operations for approximately 2 years.

Targeted Genetics brings to the venture its viral and non-viral gene delivery platform technologies, including adeno-associated virus technology - which the company is using to develop cystic fibrosis and cardiovascular gene therapies - as well as its non-viral gene-delivery technologies.

Elan, an expert in drug delivery, brings to the venture vast experience in moving drugs toward market as well as technology that uses a variety of methods to specifically deliver drugs to target organs, including ligands and encapsulation technology.

The Emerald venture doesn't impact on previous collaborations Target Genetics established nor does it preclude any additional ventures. However, it may create a company with a powerful ability to target and tailor gene expression - the vital link needed to make gene therapy practicable.

"This venture will allow us to leverage our technology to create a platform technology that very specifically targets genes to the tissues where they need to be expressed," Parker said. "I think that something very exciting is going to come out of this joint venture."