Genetics Institute Inc. (GI) and its R&D spin-off, SciGenics Inc.,have decided to discontinue development of rhM-CSF as aninfectious disease agent.

The halt in testing of rhM-CSF as an anti-infective is materiallyimportant to SciGenics, which was spun out with $42 million inproject financing in 1991, analysts said, but should not affectthe fortunes of GI (NASDAQ:GENIZ) of Cambridge, Mass., whichis about 64 percent owned by American Home Products Corp.

SciGenics (NASDAQ:SCGN) will continue to study the potential ofthis white blood cell growth factor in significantly elevatedcholesterol and in cancer. However, the cancer program has notshown "definitive clinical responses" to date, said Patrick Gage,GI's executive vice president, and may also be dropped by thesummer.

SciGenics has only one other broad program, an early-stageinvestigation of embryonic growth and regulatory proteins.

"Genetics Institute is a company with great science, and they'vehad bad luck," said analyst Stuart Weisbrod of Merrill Lynch.

Amgen Inc.'s G-CSF (granulocyte colony stimulating factor),Neupogen, was much easier to get to market, he said. Neupogenhas been approved for use in chemotherapy patients to restorewhite blood cells.

With the announcement Tuesday of a patent settlement withAmgen Inc. on erythropoietin (EPO), GI added to its patent lossto Genentech Inc. on t-PA in 1990, he said. GI has licensedaway IL-3 and GM-CSF (granulocyte macrophage-colonystimulating factor) to Sandoz Ltd.

However, analyst Jay Silverman of Wertheim Schroder is stillrecommending investment in GI, which is trading at a 50percent discount to the price of American Home Productcommon stock.

GI's second generation of products primarily focus on bonegrowth factors, spokesman Dennis Harp said. One factor, BMP, isin a pilot Phase I trial, and the company still has IL-11, a bloodcell growth factor. GI is developing IL-12 as an immunestimulant.

M-CSF (macrophage-colony stimulating factor), once a priorityof AIDS activists seeking quicker drug testing and approval, didnot show positive results "in a broad series of preclinicalmodels of infectious diseases," Gage said, and for this reason,"no additional AIDS patients with MAI (Mycobacterium aviumintracellulare) infections will be enrolled in an investigator-sponsored IND study."

Early this year GI received FDA approval to study the moleculein patients with severely high blood cholesterol levels becauseof an unexpected reduction in total cholesterol levelsdiscovered during Phase I trials in cancer patients.

"With cytokines, it has been very difficult to figure out how touse them in a clinically significant way," said Cynthia Robbins-Roth, publisher of BioVenture View.

Because SciGenics was financed for research into M-CSF, it has adue diligence obligation to fully explore the compound'stherapeutic potential, said analyst Sven Borho of Mehta & Isaly."M-CSF is really a drug in search of a disease," he added. Hebelieves most spending is going to the embryonic growthfactors, which have no specific indication now and aren'texpected to enter advanced development before 1994 or 1995.

"There's 2 million shares outstanding, the whole (SciGenics)company's worth $8 or $9 million, it's dead cheap," Borhoadded. Investors could earn nearly a 100 percent windfall if GIexercises options to buy SciGenics out, but GI is not expected todo so in the near future.

Analyst David Stone of Cowen & Co. was a GI administrativeproject manager in charge of the M-CSF program. The setbackfor M-CSF in some ways reflects the difficulty in trackingmacrophages, he said, which exist in tissue where they arehard to measure. Macrophage precursors take up less than 5percent of blood volume, so the effects of M-CSF are not as easyto track as some other blood growth factors.

"It's premature to conclude it's not going to ultimately havepretty significant applications," Stone concluded.

SciGenics has spent $26.4 million so far on all its programs, andGI has also contributed to the M-CSF program, Harp said.

Analyst Linda Miller of Paine Webber said cutting losses makesgood business sense. "In general, we'll see more discipline likethat imposed on the industry because of the concerns about thehigh risks and the high expense," she predicted.

Chiron Corp. of Emeryville, Calif., is still considering M-CSF asan anti-fungal agent in deep-seated infections in conjunctionwith the anti-fungal product Fluconozole, spokesman LarryKurtz said. The compound is in an efficacy study begun by theformer Cetus Corp., with which Chiron merged in 1991, but theprogram "is not a high priority."

GI's stock closed at $30.50 a share on Wednesday, down 50cents.

-- Nancy Garcia Associate Editor

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