Cell Genesys Inc. and JT Immunotech announced Thursday thecreation of the Xenotech Division of Cell Genesys, aimed at thecommercialization of fully human monoclonal antibodyproducts. The new division will conduct research on behalf ofXenotech L.P., the equally owned joint venture formed by thecompanies in March 1991.

The new division was formed to conduct preclinical researchbased on applications in fully human monoclonal antibody-producing mice. Cell Genesys' president and chief executive,Stephen Sherwin, told BioWorld that a broad patent on thetransgenic mouse technology developed by Cell Genesys,currently in the application stage, is now the property of thejoint venture.

Both Cell Genesys and JT Immunotech (a wholly ownedsubsidiary of privately held Japan Tobacco) will contributeequal amounts of cash to the preclinical development ofcandidate products based on the Cell Genesys' technology. Thecompanies estimated that a total of $40 million will go to theXenotech Division between now and 1997.

Cell Genesys will essentially recoup its half of the preclinicaldevelopment expenses through a series of quarterly paymentsthat will net the company $20 million in revenues by 1997.The payments are not based on technical milestones or sale ofequity.

In return for its financing, JT Immunotech of San Mateo, Calif.,gets exclusive product development and commercializationrights for Japan, Taiwan and Korea to any of the productsdeveloped by Xenotech. Cell Genesys maintains exclusive NorthAmerican rights, while Xenotech L.P. will keep rights for therest of the world; these may be licensed to third parties in thefuture.

The Xenotech Division of Cell Genesys will be located at thecompany's Foster City, Calif., headquarters, which Cell Genesyssaid will reduce infrastructure expenditures. The companiessaid they eventually intend to make Xenotech an independentoperating company. Before 1997, however, it will operateunder the direction of Cell Genesys' research management.

When Xenotech L.P. was formed in June 1991, JT Immunotechcommitted $24 million to Cell Genesys to sponsor research onhuman MAb-producing mice, $16 million of which has alreadybeen received, the companies reported. The final $8 million willbe paid in the next 18 months, bringing Cell Genesys' totalrevenue from its partnership with JT Immunotech to $44million. Cell Genesys (NASDAQ:CEGE) reported that after itslatest public offering last November it has a cash balance of$86.6 million.

Although the Xenotech division of Cell Genesys does not haveany specific candidate products for preclinical development, itdoes hold rights to L-selectin, a cell-adhesion molecule licensedfrom the Dana Farber Cancer Institute that the company saidcan be used to generate antibodies for the potential treatmentof inflammatory diseases.

The company said other possible applications for the fullyhuman MAbs include arthritis, autoimmune disease, cancer andtransplant rejection.

Cell Genesys' stock was up 13 cents a share on Thursday,closing at $18.88.

-- Karl A. Thiel Associate Editor

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