GeneMedicine Inc.'s second-generation approach to genetherapy was validated in a big way Tuesday with anagreement in which Corange International Ltd. potentiallywill pay more than $100 million to collaborate for certaincancer indications.

Bermuda-based Corange will make $20 million in equityinvestments over five years to GeneMedicine and makeresearch payments of $25 million over that stretch ifcertain milestones are reached. Another $12 million inequity investments may be made, at GeneMedicine'srequest, and additional payments would be made uponattainment of certain development milestones.

"It's a very generous deal," Paul Boni, an analyst withNew York-based Mehta and Isaly, told BioWorld. "Weknew Corange and GeneMedicine were talking . . . butthe magnitude of this deal is much more than I expected.

"GeneMedicine has some very interesting earlytechnology," Boni said. There's a lot of things that can bedone with it with some financial backing. We're lookingat the next generation of gene therapy products. They'vetaken these systems to quite a degree of sophistication.When they move into the clinic they're going to behavequite differently than the systems we're seeing today."

The Woodlands, Texas-based GeneMedicine's approachis based on non-viral gene therapies. One part of thetechnology involves plasmid gene expression systems, tocontrol the function of the gene. A synthetic gene deliverysystem controls the location of the gene in the body,where it goes and how it functions.

The company's president and CEO, Eric Tomlinson, saideach target requires a different gene delivery and geneexpression system, entailing a different platform to steerthe genes to the right targets.

"Given that cancer is probably 25 different diseases, thepartnership has identified platforms to target certaincancers," Tomlinson told BioWorld, adding that specifictargets won't be disclosed for proprietary and competitivereasons. "We're confident the approach we're taking hasearly clinical opportunity."

GeneMedicine's stock (NASDAQ:GMED) didn'trespond to the deal as might of been expected. It went upto its 52-week high of $10.75 Tuesday before closing at$9.88, down 25 cents. However, the stock's rise from the$3.50 range in February already has been significant.

A Great Deal, Despite Stock Drop

Rachel Leheny, a biotechnology analyst with New York-based Hambrecht & Quist Inc., said "this is a great dealfor the company, a rich deal, there's no question." Sheattributed the decline in part to a down market Tuesdayand in part to buying in anticipation of the deal. Also,Leheny said, market responses to data have been strongrecently but reaction to deals has been mixed, someresulting in increases and some in little or no impact.

Boni added that the GeneMedicine is not followed closelyby analysts, and that some investors might have sold onthe news. And, he said, "Gene therapy is an earlytechnology and people are moving into this a little moreslowly. Also, people might be skeptical about Corangesigning yet another gigantic deal."

Corange, the parent company of Germany-basedBoehringer Mannheim GmbH, has, to various degrees,backed out or bought out of deals this year with ProteinDesign Labs Inc. (PDL), of Mountain View, Calif., andCellPro Inc., of Bothell, Wash.; both were signed withformer Corange officials. Corange gave up rights tocertain programs in its deal with PDL and in turn reducedPDL's potential milestones by about $50 million.Corange opted out of a deal with CellPro by making $30million of an expected $60 million equity payment, andrelinquished rights to the program.

Tomlinson said GeneMedicine was aware of Corange'sactions regarding those companies, and steps were takento ensure the partners each was comfortable with thecollaboration. "Corange did a great deal of due diligenceon GeneMedicine, at the level of detail that suggests thecompany is extremely serious in its intent," he said. "Inturn, we did our due diligence on Boehringer Mannheim."

Boni said the look taken by Corange surely revealedmuch more about GeneMedicine's technology than is inthe public domain. "We can read from this," Boni said,"that GeneMedicine is competitive in the field."

One aspect of the collaboration allows GeneMedicine tochoose a development option upon products enteringPhase II. The company either can receive 50 percent ofprofits by sharing in development costs or opt for royaltypayments. Corange has an option, until February 1998, toinclude additional cancer indications by making paymentssimilar to those in this deal.

Corange on Monday bought 440,000 shares ofGeneMedicine at $9 per share, which was 20 percentpremium to the July 1994 initial public offering price of$7.50 and a significant premium to the $3.50 priceGeneMedicine was at when the companies negotiated thedeal in February, Tomlinson said. Later equity purchaseswill be at or above the current trading prices, he said.

Separately, GeneMedicine has a collaboration with RocheBioscience (formerly Syntex Corp.), a Palo Alto, Calif.-based subsidiary of Roche Holdings Ltd. The deal,involving gene therapies for inflammatory andimmunological diseases, resulted in a $15 million equityinvestment by Roche and potential milestones forGeneMedicine. A provision allows for the companies toenter a joint venture for development andcommercialization.

GeneMedicine and Vanderbilt University, of Nashville,Tenn., in the area of pulmonary gene therapy. Thecollaborators, who will try to express the alpha-1antitrypsin gene, are expected to soon take their work intohuman trials.

Growth factors are another major research area forGeneMedicine, which was founded in 1993 on workcoming out of the Baylor College of Medicine, inHouston. Tomlinson said GeneMedicine's first corporateinvestigational new drug application is expected to befiled in early 1996 using insulin-like growth factor forlocal muscle and nerve injuries. n

-- Jim Shrine

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

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