Rhone-Poulenc Rorer Inc., which already owns 46percent of Applied Immune Sciences Inc., agreed toacquire the remainder of the cell therapy company for$84.4 million in cash, or $11.75 per share, the companiessaid Wednesday.

The two companies have been collaborating since 1993,when Rhone-Poulenc paid $113 million for 37 percent ofApplied Immune. Subsequently, Rhone-Poulencincreased its stake to 46 percent with the purchase of 2million shares, at $42.5 million, that were tied toachievement of two developmental milestones.

A third potential milestone in that collaboration wasexpected to be reached in 1996, Applied Immunechairman, CEO and chief scientific officer, ThomasOkarma, said earlier this year. That could have brought inup to $50 million though a 2-million-share equityinvestment by Rhone-Poulenc.

Even without that milestone, Okarma said AppliedImmune has enough money to operate into mid-1997. Thecompany had $45 million in cash on June 30, 1995, and,based on its recent burn rate, should have had more than$35 million at the end of September.

"The original deal," Okarma said Wednesday, "wasdesigned to provide enough operating revenue for thecompany, and to issue enough shares for Rhone-Poulencto have a 60 percent ownership position. We leap-froggedthat in this current arrangement."

The company's stock (NASDAQ:AISX) closed Tuesdayat $7. It gained 65 percent, or $4.53, on Wednesday'sannouncement to close at $11.53. The stock went publicin 1991 at $12 per share, and was in the low $20s whenthe initial Rhone-Poulenc deal was struck. (See BioWorldToday, June 4, 1993, p. 1.)

Applied Immune was founded by Okarma in 1985, andcurrently has 189 employees. Okarma told BioWorldToday he was restricted from discussing the reasoningbehind the transaction before next Tuesday's mailing oftender offer documents to shareholders.

What is clear in the proposed deal is that officials fromboth companies are interested in combining AppliedImmune's expertise in ex vivo cell and gene therapy withRhone-Poulenc's in vivo experience. Applied Immune'sfacility in Santa Clara, Calif., will become the primaryU.S. operating headquarters for RPR Gencell, a Rhone-Poulenc-led collaborative effort that includes programsand technologies in cell and gene therapy from 14companies and institutions. (See BioWorld Today SpecialNews Bulletin, Nov. 14, 1994). Once the AppliedImmune deal is finalized, there will be more than 400people working in gene therapy at RPR Gencell, saidRhone-Poulenc, which is based in Collegeville, Pa., andis a subsidiary of the France-based Rhone-PoulencGroup.

"Our thinking," Okarma said, "has matured to the pointwhere we're now convinced that the way to succeed willbe the combination of in vivo and ex vivo gene therapies.The products coming downstream from this collaborationmay be integrated approaches of the two functioningunits."

He said the thinking at both companies is different than itwas when the original deal was struck in 1993. Gencellhad not been formed at that time, and research was not asdeveloped. "What changed is a bit of a longer-horizonview of how to capitalize on what Applied Immune hasdeveloped," Okarma said.

Applied Immune has five products in clinical trials, twoof which are in Phase III studies. Its technology centersaround the AIS CELLector device, which isolates specificpopulations of patients' cells from blood, bone marrow ortissue samples. The cells then may be activated ornumerically expanded before reinfusion into the patient.

The Applied Immune board said it believed the cash offerto be fair to shareholders. That judgment was made afterthe recommendation of an independent committee, andgetting opinions from Lehman Brothers Inc. and FurmanSelz Inc. The merger, subject to a tender of a majority ofshares not already owned by Rhone-Poulenc, is expectedto be completed by the end of the year.

In addition to their collaboration in CELLectorapplications, Applied Immune and Rhone-Poulenc have ajoint venture, formed in September 1993, to perform exvivo cell processing. Terms of that arrangement call forthe first $30 million to be contributed by Rhone-Poulenc,so Applied Immune's funding obligation to that venturewon't be necessary.

In Phase III, Applied Immune has a study under wayusing CELLector to prevent graft-vs.-host disease inallogeneic bone marrow transplants, and in a kidneycancer Phase III study, with the intention of showing abetter response rate using tumor infiltrating leukocytecells activated with interleukin-2 than with IL-2 alone.

Behind those trials are studies in HIV patients, restorationof blood counts after chemotherapy and, with recent FDAapproval, an ex vivo gene therapy study using Avectin (anon-viral gene transfer system) for IL-2 gene transfer inbreast cancer patients (an ovarian cancer trial protocol isawaiting approval).

Rhone-Poulenc's stock (NYSE:RPR), up $1.09 Tuesdayafter an FDA advisory committee's recommendation ofTaxotere for breast cancer, gained another $1 Wednesdayto close at $48.88. n

-- Jim Shrine

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