Targeted Genetics Corp. is expanding its gene-delivery abilities withthe acquisition of RGene Therapeutics Inc. for stock that was valuedat $18.4 million when the deal was unveiled late Tuesday.

Seattle-based Targeted Genetics has a definitive merger agreement topurchase privately held RGene for 3.64 million shares, which wouldbegin being registered after one year. Stockholders of TheWoodlands, Texas-based RGene could be issued up to $5 million inadditional stock if certain milestones are met by the end of 1998.

RGene for the most part is a "virtual" company _ seven employees,no lab _ that owns a technology using cationic lipids to delivergenes. The company also has rights to the E1A tumor suppressorgene, which represses the HER-2/neu oncogene. The E1A gene iscarried by a liposomal vector called DC-Cholesterol.

Subsequent to the merger announcement Targeted Genetics(NASDAQ:TGEN) said Wednesday it registered to sell 3.5 millionshares in a public offering. The company would gross $18 million ifthe shares sold at Wednesday's closing price of $5.13, which was up6 cents for the day.

Targeted Genetics, which is spending about $11 million per year,reported having $14.4 million in cash and equivalents at the end of1995.

Targeted Genetics currently has technologies in the areas of adeno-associated viral (AAV) vectors and cell therapies for cytotoxic Tlymphocyte immunotherapy. The combined company would havefive early stage clinical programs ongoing.

"We've always said we're very much open to the concept ofacquisitions," Targeted Genetics President and CEO H. StewartParker said, "in part because we feel the gene therapy field was toofragmented. You need multiple ways to get genes into cells."

She said the combination of the companies might make the new entitymore attractive to potential partners and investors. "The field hasbecome quite confusing to both those constituencies," Parker said.

That was a similar rationale used 16 months ago by Somatix TherapyCorp., of Alameda, Calif., when it acquired Merlin PharmaceuticalCorp., a virtual company founded primarily on adenoviral and AAVtechnologies. Merlin shareholders received 3 million Somatix sharesin the deal.

Targeted Genetics would have about 20.1 million shares outstandingif the 3.64-million-share acquisition goes through and 4.3 millionshares are sold in the offering (taking into account the underwritersoption on 525,000 shares). RGene would own about 18 percent of thecombined company.

Parker said RGene officials agreed that a successful gene therapycompany needed a number of ways of getting genes to their targets.At the same time, she said, RGene was concerned about prospects foradvancing its programs much further with the proper infrastructure."In that context," she said, "we're very good at moving things fromthe lab into clinical development.

"With the RGene acquisition we may well be the only company withnon-viral and viral vectors in clinical trials, and certainly the onlycompany with AAV, retroviral vectors and cationic lipids in theclinic," Parker said.

"Cationic" means the liposomes have a net positive charge ion on theoutside, presumably giving them an affinity to plasma DNA, whichhas an outside net negative charge.

RGene was founded by scientists Mien-Chie Hung, of the Universityof Texas M.D. Anderson Cancer Center, who discovered E1Asuppresses HER-2/neu; Leaf Huang, of the University of Pittsburgh,who developed the cationic lipid delivery system; and Gabriel Lopez-Berestein, an expert in liposomal delivery at M.D. Anderson, whohas a myelogenous leukemia program in preclinical development.

Among the owners of RGene stock are the three scientific founders,venture capital firms in the Houston area _ led by TheWoodlands/Essex Partners _ company employees and AronexPharmaceuticals Inc. (formerly Argus Pharmaceuticals Inc.), whichcontributed know-how in lipid-vector formulations. The company hasraised $4 million.

The management team at Targeted Genetics will run the combinedcompany. Joining the Targeted Genetics board will be Martin Sutter,chairman of RGene and The Woodlands/Essex Partners, and AustinLong III, director of investments for the University of Texas. Thedeal is expected to close by the end of the quarter. n

-- Jim Shrine

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