Schering-Plough Corp. is hinging its hopes of developinggene therapy-based drugs on Canji Inc., a privately heldSan Diego company whose shareholders agreed Mondayto a buyout for $54.5 million worth of the pharmaceuticalcompany's stock.

Kenneth Cohen, Canji's executive vice president andchief operating officer, said the Schering-Plough stockpayment is the first of a two-part acquisition deal. Thesecond gives Canji shareholders rights to future royaltiesfrom Schering-Plough on sales of products emergingfrom Canji's most advanced research projects, whichfocus on use of the p53 tumor suppressor gene to treatcancer.

Schering-Plough expects to begin clinical trials of p53gene therapy for liver, breast and head and neck cancersin early 1996.

The Madison, N.J., pharmaceutical company alreadyowned an 8.5 percent stake in Canji as part of an October1994 collaboration based on Canji's work with the p53gene. Adding in last year's equity investment, Schering-Plough said its takeover of Canji was worth $60 million.

Based on a trading price of $60 per share, Schering-Plough's spokesman, Steve Galpin, said the companywould issue 908,000 new shares to Canji's owners. Thedeal is expected to close in the first quarter of 1996. Atthe end of the third quarter of this year Schering-Ploughhad more than 367 million shares outstanding.

With the up-front stock payment from Schering-Plough,Cohen said Canji's shareholders will receive three timeswhat they invested in the start-up company.

Hambrecht & Quist Life Science Technology Fund, ofSan Francisco, is the largest investor in Canji. GatewayVentures, of St. Louis, is the second largest withHambrecht & Quist London Ventures third and A/SIndustriforsikring, of Oslo, Norway, fourth. Otherstockholders include Canji employees.

Since its founding in 1990, Canji raised $24 million inequity financing, Cohen said, including the investmentmade by Schering-Plough in 1994. Canji currently has"several million dollars" in cash, he added.

Among the reasons Canji favored the deal with Schering-Plough, Cohen observed, was its intention to keep theSan Diego operation "in place and build it as the center"for the drug maker's gene therapy research anddevelopment.

Canji has about 50 employees. The "vast majority,"Cohen said, will be retained by Schering-Plough. Canji'sexecutives, including President and CEO Blake Ingle,will stay with the company through the completion of thetakeover early next year, but their long-term plans werenot disclosed.

As for becoming part of Schering-Plough rather thanremaining independent, Cohen said, "It was never aquestion of going it alone or being acquired. Everybiotechnology company has to look at what its optionsare."

The best way to provide a good return to investors and tomove the science along, he added, was to merge Canjiwith Schering-Plough.

In addition to the p53 gene, Canji is conducting researchwith other tumor suppressor genes for cancer, such as theretinoblastoma gene for bladder cancer and the BRUSH-1gene for breast cancer.

Defective p53 genes have been associated with 50 percentof all cancers. A normal p53 gene is believed to blockcancer cell's uncontrolled growth by performing itsfunction of inducing apoptosis, or programmed cell death.

In the clinical trials expected to begin next year, Canjiscientists will use an adenovirus vector to deliver anormal p53 gene in vivo to the cancer cells. The firststudies are expected in liver cancer patients, who willreceive the gene therapy through injection into the hepaticartery.

Preclinical studies in rat models of liver cancer showedthe gene therapy resulted in expression of normal p53genes in liver and tumor tissues along with reduction intumor growth.

Schering-Plough officials said Canji has "key patentrights" concerning gene therapy. When asked to describethem for the p53 gene, Galpin said, Canji has patentapplications filed making broad claims to p53 genetherapy.

The acquisition of Canji represents a major thrust intogene therapy development for Schering-Plough, Galpinsaid. Canji's operations will be overseen by Cecil Pickett,executive vice president of discovery research atSchering-Plough Research Institute in Kenilworth, N.J.

In a prepared statement, Schering-Plough's president,Richard Kogan, said, "Just as DNAX [Research Institutein Palo, Alto, Calif.] is pioneering discoveries inbiotechnology and immunology, so do we expect Canji inSan Diego to become Schering-Plough's center for genetherapy research."

DNAX was acquired by Schering-Plough in 1992.

Schering-Plough's stock (NYSE:SGP) closed Monday at$58.37 down 87 cents. n

-- Charles Craig

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