CytoTherapeutics Inc. and Genentech Inc., which have had aninformal relationship for the past few years, said Friday thatthey signed an exclusive agreement to develop central nervoussystem (CNS) therapeutics.

The drugs will be based on the encapsulation and implantationof cells within the body to produce neurotrophic factors for thetreatment of neurodegenerative diseases. The first applicationunder the collaboration will be the use of nerve growth factor(NGF), currently in preclinical development, for the treatmentof Alzheimer's disease, using CytoTherapeutics' implants for thesite-specific, continuous delivery of NGF. Four other factors arealso included in the agreement.

"Our agreement formalizes a relationship that began in 1991with Genentech's initial equity investment inCytoTherapeutics," said Seth Rudnick, chairman and chiefexecutive officer of CytoTherapeutics of Providence, R.I. "Bycombining Genentech's molecular biology capabilities with ourtechnology to deliver substances across the blood-brain barrier,we have created a partnership to accelerate the commercialdevelopment of CNS therapeutics."

Genentech (NYSE:GNE) of South San Francisco, Calif., will makean initial payment of $1.25 million and purchase $3.5 millionworth of CytoTherapeutics' common stock (NASDAQ:CYTO),which closed at $9.75 a share on Friday, up 38 cents. Additionalpayments totaling $10.5 million will be made upon completionof certain milestones for the Alzheimer's program.

CytoTherapeutics will retain worldwide manufacturing rights.In North America, Genentech will pay up to 75 percent ofclinical development expenses. CytoTherapeutics, which has co-promotion rights in North America, will get a royalty based onsales and share profits based on its proportion of developmentcosts. Genentech will market the product outside NorthAmerica and pay all associated development and clinical costs.

Two of the four growth factors included in the agreement areNT-3 (Neurotrophin-3) and NT-4/5, with the other two to bedetermined. Terms on those factors will be structured similarlyto the Alzheimer's program.

Genentech already holds more than 100,000 shares of stock inCytoTherapeutics, which went public in March 1992 and hasabout 10.4 million shares outstanding, said Elizabeth Razee,manager of corporate communications for CytoTherapeutics.

-- Jim Shrine

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