Escagenetics Corp. of San Carlos, Calif., announced Wednesdayplans to repot its efforts in plant-sourced pharmaceuticaldevelopment by converting a division into a new subsidiarycalled PhytoPharmaceuticals Inc.

The wholly owned unit takes charge of Escagenetics' best-known project, using the company's plant tissue culturetechnology to scale up production of the potential anti-cancerdrug taxol. PhytoPharmaceutical's method for producing thedrug, which has shown promise in clinical tests against ovariancancer, could spare the Pacific yew tree, whose bark andneedles are now the sole source of taxol.

"While the company's first commercial product will be taxol, wewill target other plant-derived organic compounds that addressa wide range of diseases," Raymond J. Moshy, Escagenetics'chief executive officer, told BioWorld on Wednesday. Hedeclined to specify what other drug candidates might bepursued.

However, PhytoPharmaceuticals has access to thousands ofplant extracts in Escagenetics' library. The company plans tostrike collaborative agreements with other drug developers toexpand that library and to gain access to technologies forscreening the compounds for pharmacological properties. It willlikely also want help with clinical development and productmarketing, Moshy said.

Escagenetics will seek pharmaceutical partners for taxol, too."We're not going to be able to do everything ourselves," Moshysaid. "Our attempt is be an early and low-cost producer oftaxol."

Collaborations and private stock offerings are among thepossible tools to fund Escagenetics' new offspring, which mightsomeday be spun off through an initial public stock offering,Moshy said. He expects to soon announce one such collaborationand one or two more this fall.

PhytoPharmaceuticals is expected to operate at a $2.5 millionto $3 million loss during its first year, Moshy said.

PhytoPharmaceuticals' formation comes just as Escagenetics'main business evolves from research into product marketing.The company's first commercial products -- a true potato seed(instead of tubers) and a hybrid sweet corn for which thecompany claims an extended shelf-life -- are being readied forcommercial launch.

"The company is a semi-operating company moving to anoperating company," said Gary Davis, an analyst with VantageSecurities Inc. of New York, which managed a $6.7 millionprivate stock placement for Escagenetics last February.Proceeds from the offering were primarily used to fund itspharmaceutical programs.

Initial product sales, combined with up-front payments fromcollaborative agreements, could nudge Escagenetics into theprofit column for the 1993 fiscal year, ending next March 31,Davis said. More important, however, is that Escageneticsshould achieve an operating profit during fiscal 1994.

Moshy said Wednesday that Escagenetics, which posted a $3.6million loss for fiscal 1992, has about $6 million in cash.

Escagenetics' stock (ASE:ESN) closed Wednesday down 25 cents ashare at$7.50

Davis also expects continued progress on taxol byPhytoPharmaceuticals. "The production process will be lesscostly than tree bark, needles and twigs by a factor of five," hesaid.

Escagenetics now measures its monthly production of taxol ingrams instead of milligrams as it did as recently as lastDecember, Moshy said. Two recently purchased 72-literreactors, scheduled to start up this week, should help thecompany fine-tune its process as it plans for bulk production.

"We're developing the engineering parameters that areessential for the scale-up design," Moshy said. The project issupported by an $800,000 grant from the National CancerInstitute. Moshy figures that Escagenetics is spending abouttwo and one-half times that amount.

Bristol-Myers Squibb, which is running clinical trials of taxolproduced from tree bark, has contracted with Phtyon Catalyticof Ithaca, N.Y., to develop production methods.

-- Ray Potter Senior Editor

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