By Debbie Strickland

Human Genome Sciences Inc. is teaming up with a research hospital and contract research organization (CRO) to form a new virtual company, Vascular Genetics Inc., charged with developing and commercializing a vascular-disease gene therapy based on the vascular endothelial growth factor 2 angiogenesis gene (VEGF-2).

HGS will own 19.9 percent of the new firm, with warrants for another 5.1 percent. The Rockville, Md., biotech firm is contributing the patent-pending VEGF-2 gene, along with business development and financial assistance. Vascular Genetics also has the right to select from HGS' collection two additional genes for use as vascular disease gene therapies.

HGS will receive royalties in the high single digits, and will have the option to manufacture VEGF-2 for a fee.

"From HGS' point of view, this is the first significant mobilization of our considerable assets in the field of gene therapy," said William Haseltine, chairman and CEO. "This is the first of what I hope may be a number of independent ventures of this sort."

The venture also creates "a way of developing a promising drug off balance sheet" with a "minimal drain on our own resources," he said.

The contract research firm, Cato Holding Co., has a 40.1 percent equity stake and will provide the new company with general management and administration, regulatory services and clinical development strategy. Cato's facility in Research Triangle Park, N.C., will headquarter the firm, to be led by Allen Cato as CEO. Lynda Sutton, cofounder of Cato, will serve as secretary, and Alan Musso, Cato's chief financial officer, will be the new company's treasurer.

For St. Elizabeth's Medical Center, of Boston Inc., which holds 20 percent of Vascular Genetics, the deal is the first of its kind, according to spokeswoman Sonya Hagopian. The hospital will provide a patented gene-delivery formulation developed by Jeffrey Isner, the chief of cardiovascular research at St. Elizabeth's as well as professor of pathology and medicine at Tufts University School of Medicine, in Boston. Isner will own the other 20 percent of Vascular Genetics.

HGS Has Option To Buy Out New Company

HGS, Cato and St. Elizabeth's all hold preemptive rights that will permit them to maintain their ownership percentages in the event of a future financing. In addition, HGS and St. Elizabeth's have rights of first refusal for the shares of the other holders should they decide to sell. HGS alone has the option to purchase 100 percent of Vascular Genetics' stock at fair market value subject to prior approval of the company's board of directors and St. Elizabeth's.

The amount of the company's start-up funding was not disclosed, though Haseltine said HGS will provide initial capitalization through a loan. Cato will contribute services that will be reimbursed downstream.

"The goal of this effort is to enter VEGF-2 into clinical trials as soon as posible, and once there are results from the clinical trials, then we plan to finance [the company]," said Haseltine. "But we have plenty of financing to get it through its initial clinical trials."

VEGF-2 expresses a protein that acts on endothelial cells to promote new collateral blood vessels that detour the blood traffic around blockages. The first order of business for the new firm will be the preparation and submission of an investigational new drug application for limb ischemia and other peripheral arterial diseases.

A Different Heart Gene Therapy Showed Promise

Isner this week presented promising clinical data on a different, naked-DNA-delivered VEGF gene at this week's American Heart Association scientific meeting, in Orlando. Sponsored by St. Elizabeth's, the small limb ischemia trial showed that the gene improved bloodflow and induced blood vessel formation, while raising ankle blood pressure — a crucial guage of clinical success in this indication.

"To my knowledge," said Isner in a prepared statement, "this kind of improvement has never been shown to occur without surgery or angioplasty in this group of patients. This kind of improvement does not occur spontaneously."

Vascular Genetics' VEGF-2 gene has shown similar effects in animal models and, Haseltine said, may offer an added bonus over the one just tested by Isner.

"We believe [VEGF-2] may have a paradoxical effect of inhibiting restenosis because it antagonizes some of the factors that create restenotic growth," he said. Thus, the gene would not only promote the formation of new blood vessels around blockages, but also would prevent restenosis, which occurs in about 40 percent of angioplasty patients.

Meanwhile, GenVec Inc., of Rockville, Md., plans to submit an investigational new drug application on its VEGF gene, VEGF-121, by the end of the year. The privately held company in September inked a $100 million collaboration deal with the Parke-Davis division of Warner-Lambert Co., of Morris Plains, N.J.

Haseltine pointed to that deal as an example of the kind of marketing agreement Vascular Genetics might sign if all goes well in the clinic.

Human Genome Sciences, Haseltine noted, remains on track to submit its first investigational new drug application for a therapeutic protein by year end, followed by a second in the first quarter of 1998.

The company's shares (NASDAQ:HGSI) closed Monday at $42.313, up $1.35. *

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