One of the largest single-product deals in biotechnologywas completed Tuesday when Hoechst Marion RousselInc. agreed to pay Cell Genesys Inc. up to $160 million ina collaboration to develop the latter's T cell gene therapyfor AIDS.
The agreement calls for at least $50 million in committedpayments over two years: $20 million was in the form ofan equity investment at a 50 percent premium, and $30million in research payments. Another $100 million inresearch and milestone payments, with the majority inresearch funding, could be made over the next five years,and warrants issued could result in another equityinvestment of nearly $10 million.
In addition to the money, La Jolla, Calif.-based CellGenesys benefits by keeping rights to the technology forindications outside AIDS, and has the opportunity to co-promote resulting products in North America as well asleading development there. Company officials saidHoechst's financing commitment should cover allproduct development costs, that they will retainmanufacturing rights worldwide, and that their Germany-based partner will fund all development outside of NorthAmerica.
"This is one of the largest single-product deals in thebusiness, and clearly the largest gene therapy deal thatdidn't include the sale of a majority stake," said R. ScottGreer, Cell Genesys' senior vice president, corporatedevelopment.
Cell Genesys recently started the Phase II portion of itsAIDS trial, in which killer T cells taken from oneidentical twin are genetically engineered to receive T cellreceptor genes, then injected into the HIV-infectedsibling. Phase II studies expected to start early next yearwill involve autologous therapy, in which T cells will betaken from the infected patient, and be morerepresentative of the product's commercial application. Inthat study the combination of T cell gene therapy and ananti-retroviral drug will be compared to anti-retroviraltherapy alone.
"It's a phenomenal deal," said Fariba Ghodsian, a vicepresident and analyst with Los Angeles-based WedbushMorgan Securities. "That $50 million of it is committedmakes it a very attractive situation. In a sense it's like ajoint venture, but with the large committed money. Iknow the management at Cell Genesys is very good, but Idid not think they would do such a large deal."
Paul Boni, an analyst with New York-based Mehta andIsaly, was equally impressed with the deal. "It reallylooks fabulous," he said. "It looks as good as peoplethink, and a lot better than we would have expected."
Cell Genesys stock (NASDAQ:CELE) jumped 24 percenton the news, rising $1.44 to close Tuesday at $7.50.
While the deal only involves AIDS, Hoechst MarionRoussel, the Kansas City, Mo.-based pharmaceutical armof Hoechst AG, does get rights to second-generationAIDS technology, such as Cell Genesys' stem celltherapies and its earlier-stage universal cell program. Inaddition, Hoechst has rights of first negotiation forindications outside AIDS, with cancer being the nextlikely application of the T cell technology.
Boni said it will be interesting to see what Cell Genesys,which has maintained a good cash position, does with themoney now that it is even stronger financially. "It's veryexciting for the company now that they can look forwardto what's next because they have good resources andpartners to help them out," he said. (The company's otherlarge relationship is a joint venture with Japan TobaccoInc., of Tokyo, on development of human antibodies frommice. A lead product there is expected to be identified bythe end of the year.)
Stephen Sherwin, chairman, president and CEO of CellGenesys, said the company will end the year with morethan $75 million in cash. One possibility is acquiring anear-term product to complement existing work, againprobably in the area of cancer.
A Complement To Standard Therapies
The company's T cell program involves the geneticmodification of killer T cells with new surface receptorgenes, thus enabling the T cells to selectively bind to anddestroy HIV-infected cells. The idea is that destroyingHIV-infected cells would complement standard therapies,which target the replicating virus.
"The beauty is that it's broadly applicable," Greer said."All one needs to do to create another product is topreplace the targeting moiety, the antigen-recognitionvehicle."
Hoechst, the world's third-largest pharmaceuticalcompany, brings to the collaboration modified T cellresearch that it funded at Massachusetts General Hospital.It also has a small molecule in early human studies forHIV.
"Hoechst is an outstanding partner," Sherwin said. "Theyhave a commitment not only to the development of AIDStherapies but the development of gene therapies that fit inwith their business focus. In this partnership you see astatement of commitment to those areas and a belief thatwe have a program that already has demonstrated greatvalue."
The completed Phase I portion of Cell Genesys' trialinvolved 29 sets of twins. While company officials saidthe safety data won't be available until year's end,Ghodsian said the Hoechst deal is a good indication thatthe data are favorable. Forty sets of twins, including theinitial 29, will participate in the efficacy portion of thetrial.
Sherwin said the twins' study is providing importantinformation for future autologous studies, such as givingresearchers the ability to compare gene-modified cells tounmodified cells, to compare alternate treatmentregimens and to enhance their ability to modify and growT cells. He said the autologous study should set the stagefor pivotal trials.
Boni pointed out that Hoechst may have been motivatedto some extent in the deal by some patent overlap thepartners may have. He said Hoechst is able to access CellGenesys' technology with the deal and resolve andpotential intellectual property issues.
Hoechst is buying 2 million shares of Cell Genesys at $10each, gaining a stake of about 13 percent. The five-yearwarrants can be redeemed after one year for another750,000 shares at $13 each, if the stock is trading at acertain premium to that price. Hoechst is restricted fromgetting a stake greater than 19.9 percent in thebiotechnology company. n
-- Jim Shrine
(c) 1997 American Health Consultants. All rights reserved.