Sandoz AG is making an $80 million equity investment in SyStemixInc., and in doing so increasing its stake in the biotechnologycompany to 71.6 percent on a fully diluted basis.

Pharmaceutical giant Sandoz will purchase about 4.6 million sharesof SyStemix (NASDAQ:STMX) and receive warrants for another 1.4million shares, which have an exercise price of $27.50 per share anda maturity of three years. Warrants aside, Sandoz bought the sharesfor $17.33 apiece. SyStemix's stock closed at $17.13 Tuesday, up$1.13.

Under a December 1991 agreement, the Swiss company purchased a60 percent stake in SyStemix for $392 million. The deal stipulatedthat Sandoz was prohibited from increasing its holdings for sevenyears, although it could offer to buy all remaining shares after threeyears.

The amended agreement allows Sandoz to own 71.6 percent of thePalo Alto, Calif. company on a fully diluted basis, and increase itsstake to 73.9 percent if it exercises the warrants, said WendyHitchcock, SyStemix's chief financial officer. In December 1998,Sandoz can increase its holding to 75 percent, and is not restrictedafter December 2001.

SyStemix reported $37 million in cash on Sept. 30, enough to lastuntil mid-1995. Hitchcock said the $80 million should take thecompany another 18 months after that.

"The company needed financing, and the financing markets aretough," Hitchcock told BioWorld. "We needed to get 18 months offinancing. There were a number of alternatives we were discussing,and the one with Sandoz turned out to be the best.

"Doing something in this market at market price is significant," shesaid. "We're pleased in terms of both the financing and Sandoz'sexpression of continued confidence."

SyStemix, which focuses mainly on developing cellular and genetherapy products based on hematopoietic stem cells and progenitors,also is collaborating with Sandoz. The most significant of thoseefforts is a joint venture called Progenesys, which is developinghematopoietic cell-based therapies for HIV.

Robert Faulkner, an analyst with S.G. Warburg & Co. Inc., in NewYork, told BioWorld that the financing likely means that SyStemixwill remain independent, through the financing period and maybewell after that.

"Clearly it's a fundamental positive for the company," Faulkner said."It reaffirms Sandoz's commitment to the company in the eyes of themarket.

"This is a move that leaves the company independent," Faulknersaid. "I'm not aware of any friction between the companies, soindependence appears to be in the cards. We remain confident thatSyStemix is a leader, or the leader, technologically in stem cell-based cell therapy. We don't know that they'll be first to market, butare impressed by the precision of their process."

Sandoz has six of the 11 seats on the SyStemix board of directors.Hitchcock said that if Sandoz makes an offer for the rest of theSyStemix, which it now can do, two of three independent boardmembers must approve. n

-- Jim Shrine

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

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