By Mary Welch

Genzyme Corp. is raising $250 million through a private placement of 5.25 percent convertible notes due in 2005 to boost its drug development pipeline, particularly in the area of cardiovascular gene therapy, and its surgical products business.

Sale of the notes is expected to close Friday and they are not callable for three years. The notes will be convertible into Genzyme General common stock at a conversion price of $39.60 per share. Genzyme General is one of three divisions of Cambridge, Mass.-based Genzyme Corp. with its own tracking stock. It has 78 million shares outstanding. If the notes are converted, that number will reach 84 million.

Handling the private placement are Credit Suisse First Boston, Cowen & Co. and Goldman Saks, all of New York.

"We wanted to strengthen our cash position," said Bo Piela, manager of media relations. "There are a lot of opportunities out there, and we are always in the process of exploring potential deals, like RenaGel. We are also interested in expanding our product position with surgical companies."

The placement boosts Genzyme's cash to $440 million.

Piela did not speculate whether Genzyme was interested in more collaborations or was shopping for acquisitions.

"I'm using the word 'deals' very broadly," he said. "I don't want to imply anything — except to say that we are looking at exploring options for companies with late-stage products. I will say that we are interested in cardiovascular gene therapy."

Genzyme's stock (NASDAQ:GENZ) closed Wednesday at $27.875, down $0.343.

Genzyme has not been afraid to buy an interest in a company in order to obtain a product. Nor is it averse to buying a company outright.

Several Major Deals Over Last Two Years

In June 1997, Genzyme made an equity investment in GelTex Inc., of Waltham, Mass., and agreed to pay $25 million in milestones for a 50 percent interest in RenaGel. Together, they formed RenaGel LLC with worldwide rights (excluding Japan and the Pacific Rim) to market the dialysis-related product.

RenaGel is designed to control elevated phosphorous levels by binding in the intestine with dietary phosphate (mostly from proteins), thus preventing it from reaching the bloodstream. Both RenaGel and the phosphate are excreted. (See BioWorld Today, June 19, 1997, p. 1.)

In June last year Genzyme also spent $15 million to purchase 14 percent of Abiomed, a Danvers, Mass., medical device company with two products on the market. They are the BVS-5000, a biventricular temporary cardiac support device, and PerioTemp, a device for screening early periodontal disease. (See BioWorld Today, June 30, 1997, p. 1.)

In July 1996, Genzyme paid $250 million in cash for Deknatel Snowden Pencer (DSP), of Falls River, Mass., a privately held surgical instruments company. The acquisition, which was expected to add $95 million in revenues to Genzyme, also was described as a move to help boost introduction of Genzyme's post-operative anti-adhesion devices to the marketplace. DSP formed the basis of Genzyme's surgical products unit.

Peter Drake, an analyst with Vector Securities International in Deerfield, Ill., speculated in a report on Genzyme's financing that the company is positioning itself to consummate some strategic deals, particularly in the surgical products area. Genzyme recently hired several senior executives with heavy surgical products experience, he observed.

David Stone, managing director of Cowen & Co., in Boston, upgraded his recommendation of the stock to a "strong buy." He said Genzyme could use the money in a number of ways.

"It could be used for acquisitions or partnerships," Stone said. "But it also may be used to reduce debt, particularly a restructuring of its loan with DSP."

Stone agreed surgical products would be a logical target, but he suggested there could be others.

"Genzyme is a broader company than most biotechnology companies," he said. "They are into health care, therapeutics, and diagnostic products. They are diverse. They do like companies whose products are at a relatively advanced stage but so does the whole world. They may have to invest in something at a little earlier stage. They may also look for an inventor who has a patent but can't market or develop it himself."

Stone said the money will help "in whatever they do. It may be all of the above. The ways things are now, the financial deals are getting more creative. Having a large war chest can certainly help facilitate a deal." *

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