Transkaryotic Therapies Inc. filed for an initial public offering (IPO)of 2.5 million shares, three years after an earlier attempt waspostponed because of unfavorable market conditions.

The Cambridge, Mass., company, incorporated in 1988, has twoplatform technologies: Gene Activation and gene therapy. It expectsthe shares to be priced between $13 and $15 each, generating grossproceeds of about $35 million. Corporate partner Hoechst MarionRoussel Inc. is purchasing an additional $5 million of stock in theoffering.

The offering is being underwritten by Morgan Stanley & Co. Inc. andUBS Securities, both of New York, and Pacific Growth Equities Inc.,of San Francisco. After the offering the company will have 16.7million outstanding shares. Transkaryotic Therapies, or TKT, hadabout $29 million in cash on June 30, 1996.

TKT's Gene Activation technology involves an approach to thelarge-scale production of therapeutic proteins that does not requirethe cloning of genes and their subsequent insertion into non-humancell lines. With that technology the company said it avoids usingpatented approaches to the production of proteins that useconventional genetic engineering.

The most advanced Gene Activation development program is for theproduction of erythropoietin (EPO), a protein hormone that is beingdeveloped with Frankfurt, Germany-based Hoescht. Clinical trials areexpected to begin in the first half of 1997, the company said in itsprospectus, which was filed Tuesday.

Hoechst (formerly Marion Merrell Dow Inc.) and TKT entered intotwo collaborations, one in May 1994 and the second in March 1995.The second protein has not been disclosed. TKT has received $42million so far in deals that could be worth $125 million in licensefees, equity investments, milestones and research funding. Hoechst isresponsible for all worldwide development, manufacturing andmarketing, and would pay TKT royalties on sales.

The development of EPO, a $2.9 billion worldwide market in 1995,sets up a potential conflict down the road with Amgen Inc., theworld's top biotechnology company, which last week was grantedadditional protection for its Epogen product through the issuance of aU.S. patent covering recombinant EPO. Amgen, of Thousand Oaks,Calif., had $883 million in 1995 sales of the drug, which stimulatesproduction of red blood cells. It is used to treat anemia associatedwith chronic renal failure.

Ed Hurwitz, an analyst at Robertson Stephens & Co. in SanFrancisco, issued a report saying TKT probably would not have filedfor the IPO unless it was confident its product could circumvent theAmgen patent. The TKT filing, therefore, could mean long-termerosion to Amgen's EPO franchise. "However, we remind investorsthat Amgen has a broad proprietary patent estate covering EPO andthat it is likely that it has additional patent applications pending thatmay further complicate this situation for TKT and others. Thus webelieve the patent issue is one that needs to be watched over the longhaul but not one to cause panic near-term."

Hurwitz reiterated a buy rating on Amgen. He said, however, the leadbanker for TKT downgraded Amgen because of TKT's potentialproduct.

TKT said its initial business strategy is to apply the Gene Activationtechnology to the development and commercialization of severalcurrently marketed proteins, with the Hoechst collaborations theprimary focus. It said it is actively pursuing other Gene Activationproduct candidates for commercialization, either with partners or byitself.

The company said the technology is based on the observation thatnearly all human cells contain genes encoding commercially valuableproteins, but the genes are generally "turned off" in most cells.Unlike conventional protein production, Gene Activation bypassesthe genetic "off switch" in the human cell with DNA sequencesincluding an "on switch" that allows the gene to express the desiredprotein in its natural setting.

The Gene Activated human cells, the company said, are then grownin large numbers and the protein of interest is harvested, purified andreadied for administration.

The company's gene therapy technology, called TranskaryoticTherapy, is a non-viral, ex vivo system based on the geneticmodification of patients' cells to produce and deliver therapeuticproteins for extended periods of time. TKT said the system hasproduced target proteins at therapeutic levels for the lifetime ofanimals without side effects.

The cells are removed in an outpatient procedure and sent to thecompany's pilot manufacturing facility, where they are geneticallyengineered to produce the desired protein. DNA is inserted usingphysical or chemical techniques rather than viruses.

TKT said the gene therapy system is broadly enabling and well suitedto the treatment of chronic protein deficiency states such ashemophilia and diabetes. Preliminary Phase I data indicate thetherapy appears to be well tolerated.

TKT said it anticipates beginning a Phase I trial of the gene therapysystem this year in Fabry disease, a lysosomal storage disorder, basedon the production and delivery of the enzyme galactosidase. A studyfor hemophilia A, based on production and delivery of Factor VIII, isplanned for 1997.

TKT in July 1993 registered for an IPO of 2.5 million sharesexpected to be priced between $9 and $11. That was a particularlydry time for biotechnology offerings because of uncertaintiessurrounding health care reform, cost containment and drug pricing.The company ended up pulling the offering late in August. (SeeBioWorld Today, July 2, 1993, p. 1., and Aug. 26, 1993, p. 1.)

Since then TKT has kept a fairly low public profile.

In 1994 TKT entered into a three-year collaboration with theUniversity of Freiburg, and as part of that is sponsoring the first genetherapy trial approved in Germany. The Phase I study is based on thedelivery of interleukin-2 by genetically modified skin fibroblasts as amethod of helping the immune system attack tumor cells. It also hasestablished recent collaborations to study the gene therapy of Hurlerdisease, a lysosomal storage disorder, and one for gene and proteinreplacement of a group of lysosomal storage disorders.

TKT has 117 full-time employees, including 88 scientists. RichardSelden is president, CEO, a director and chairman of the scientificadvisory board.

Warburg, Pincus Capital Co. L.P., of New York, will own about 35percent of TKT after the offering, assuming it exercises certainwarrants and converts preferred stock, and Hoechst will own 13.3percent. n

-- Jim Shrine

(c) 1997 American Health Consultants. All rights reserved.

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