Genzyme Corp. said Friday it reached agreement in principle withdirectors of Neozyme II Corp. to purchase Neozyme for $109 millionin cash.
Neozyme II was formed in 1992 to fund work for Genzyme related totreatments for cystic fibrosis. Investors purchased 2,415,000 units for$35 each, raising net proceeds of $78 million to fund the workthrough 1996. Genzyme offered $45 per unit to Neozymeshareholders, who also hold a warrant (NASDAQ:GENZZ) for eachunit trading at $12.13.
Genzyme, of Cambridge, Mass., has had an option to purchase theNeozyme financing vehicle with stock or cash for escalating prices,which started at $48 per unit before 1994 and moved up to $117 perunit this year. Genzyme also had the option not to purchase NeozymeII.
Neozyme's main focus is developing gene therapies for cysticfibrosis (CF) and Pseudomonas infections in CF patients.
Anthony Butler, an analyst at New York-based Lehman Brothers,liked that Genzyme was paying cash rather than issuing new stock forthe purchase. He said the redemption of certain outstanding Genzymewarrants by the end of the year will bring in $102.4 million, leavingonly $6 million to come from the company's cash reserves.
Butler said the move should be viewed as a positive for Genzyme andthe technology is of value to the company.
Neozyme units (NASDAQ:NIIUF) gained 69 cents Friday to close at$44.75. Genzyme (NASDAQ:GENZ) was unchanged at $23.38.
David Stone, a managing director in Cowen & Co.'s Boston office,said it is strategically important for Genzyme to retain the assets ofNeozyme, even though the gene therapy efforts did not progress asfast as originally anticipated. "They view gene therapy as a majorstrategic initiative," Stone said. "It's their largest R&D program,"and the technology is being developed for applications beyond CF.
Stone said it also makes sense to keep the Neozyme assets out of thehands of competitors. "Though it's only one program it's the bestefforts of all their systems revealed in detail," he said.
Cowen assumed in its model 1.6 million Genzyme shares would beused to purchase Neozyme II. Offering cash _ which reducesdilution and also interest income _ results in a net earnings per sharegain of 3 cents in 1997 and 10 cents in 1998, Stone estimated.
Genzyme said its agreement in principle was reached withindependent directors of Neozyme II, who retained financial andlegal advisors to evaluate the proposal. A definitive agreement, ifreached, is expected by the end of the year. A spokesman forNeozyme could not be reached for comment.
In one effort Neozyme and NABI, of Boca Raton, Fla., workedtogether on a treatment for severe Pseudomonas lung infections in CFpatients. A Phase II trial testing the immune globulinHyperGAM+CF was stopped in June after an interim analysisshowed no reduction in the number of acute pulmonaryexacerbations.
Neozyme has a larger focus in the gene therapy area, with a numberof programs being developed to deliver the cystic fibrosistransmembrane regulator gene to CF patients.
During the second quarter, a nasal study using the company's leadlipid-DNA complex for CF was completed at the University of Iowa.In it the complex was administered to one nostril in each of ninepatients. DNA plasmid was delivered to the other as a control. Thelipid-DNA complex was well tolerated but not superior to theplasmid DNA in improving ion exchange across the cell membrane.A follow-on study is planned.
In the second quarter Genzyme conducted an aerosol study with thelipid alone, involving 15 non-CF volunteers. It was well tolerated,and a pilot study is planned later this year.
Also in progress is a lipid nasal study using DMRIE, a lipiddeveloped by Vical Inc., of San Diego, and an adenovirus studyinvolving both bronchial instillation and aerosol delivery of a third-generation adenovirus vector. n
-- Jim Shrine
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