Genetics Institute Inc. reached an agreement Thursday tobuy back its spin-off company, SciGenics Inc., for $29.3million, or about $14 per share.

SciGenics, spun off from Genetics Institute, went publicin 1991 at $22 per unit. Its lead development program,recombinant macrophage colony stimulating factor (M-CSF), failed to show efficacy in the first two indications.

In return for their $22-per-unit investment, SciGenicsshareholders get $14 in cash per share, and hold warrants(NASDAQ:GENIW) for Genetics Institute stockcurrently trading at $7.38, meaning they nearly got theirinitial investment back. But original investors still havethe possibility of seeing their investment appreciatethrough the warrants.

The warrants can be exercised, until May 31, 1996, for$35.92 apiece. Those exercising warrants will get $20 incash and six-tenths of a Genetics Institute share(NASDAQ:GENIZ), which would be worth $23.70 basedon Thursday's closing price of $39.50 for GeneticsInstitute.

Genetics Institute in June proposed buying backSciGenics at $12 per share. Thursday's $14-per-shareagreement was approved by the SciGenics board ofdirectors.

The company was spun off specifically for two programs:M-CSF and an early-stage effort in embryonic growth andregulatory proteins (EGRP factors).

"One of the difficulties in our position in the negotiationsis that the M-CSF program had not lived up to its fullexpectations and the EGRP program has not yet yieldedany factors," said Dennis Harp, director, corporatecommunications for Genetics Institute.

Development of M-CSF was discontinued in cancer andinfectious diseases because of "a lack of sufficientefficacy," Harp said. Patient accrual is completed in aPhase I/II trial of M-CSF for a cholesterol-loweringindication _ familial hypercholesterolemia _ and resultsshould be available by the end of the year. He said resultsof that study will dictate development plans for thatindication.

The EGRP program, still in the research stage, hasn'tproduced any factors. One area of focus within theprogram, Harp said, has been to identify factors involvedin the growth and differentiation of cells that produceinsulin in the pancreas.

The tender offer by Cambridge, Mass.-based GeneticsInstitute may be viewed as generous in light of thedisappointing results to date, an analyst said. It shows thatGenetics Institute is interested in EGRP, and in keepingits investors happy, the analyst said.

In addition to the two programs, SciGenics had about $10million in cash in June and $2 million in liabilities, Harpsaid. The shares are closely held, with six institutionsholding 70 percent of SciGenics' outstanding stock.

The warrants can appreciate in particular if AmericanHome Products Corp., of Madison, N.J., exercises its calloption, which it can do until Dec. 31, 1996. AmericanHome Products owns 64 percent of Genetics Institute andthe current call option price is $75.79.

The purchase of SciGenics adds to a Genetics Institutepipeline that includes four products currently in clinicaltrials, and research programs in immunology, bone andconnective tissue, and small molecule drug discovery. Inthe clinic are interleukin-11, scheduled to start Phase IIIstudies this fall for platelet restoration in patientsundergoing chemotherapy; recombinant Factor IX, whichis in Phase III for hemophilia B; bone morphogenicprotein-2 is in pilot studies in various indications; andinterleukin-12 was in a Phase II trial in kidney cancerpatients when the study was put on hold because ofadverse events.

"We are nearing the end of our investigation [into thecause of the adverse events] and hope to be able toresume clinical studies in cancer and HIV later this year,"Harp said. n

-- Jim Shrine

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