Somatix Therapy Corp. on Thursday announced that it intends tomerge with GeneSys Therapeutic Corp., a start-up gene therapycompany headed by former Amgen President Harry Hixson Jr., ina deal worth about $22 million.

Impetus for the deal came from the venture group Kleiner,Perkins, Caufield & Byers, said Hixson, who will becomechairman of the merged company.

"We were out pursuing classic venture capital financing, andthey were concerned the field had become too fragmented,"Hixson told BioWorld. "They suggested putting several genetherapy companies together, and we pursued that."

Somatix, itself the product of a merger earlier this year withcell therapy specialist Hana Biologics Inc., will relinquish 29percent ownership to shareholders of GeneSys, which wasformed in August 1990.

GeneSys shareholders will receive 0.50413 shares of newlyissued Somatix stock in exchange for each GeneSys share,resulting in the issuance of 3 million shares of Somatix stock.After the deal, Somatix will have 7.6 million sharesoutstanding. The stock (NASDAQ:SOMA) closed at $7.25, up 38cents, on Thursday.

In addition, 500,000 warrants to buy Somatix stock will beissued to Kleiner, Perkins, and 125,000 warrants will beissued in relation to a previous internal financing at GeneSys.The three-year warrants have a $4 exercise price.

The merged company will pursue autologous gene therapyprograms in cancer treatments, cardiovascular disease andhemophilia at Somatix's Alameda, Calif., location and a centralnervous system program focused on Parkinson's disease atGeneSys' La Jolla, Calif., site.

"Now all we have to do is raise all the money to finance this,"said David Carter, chairman and chief executive officer ofSomatix, who will become CEO of the merged company. Somatixplans a secondary offering early next year and will also pursueR&D and corporate partnerships.

Somatix's cancer vaccination program involves removingcancer cells from a patient, inserting lymphokines thatsensitize the immune system to recognize the cancer cells asforeign, rendering the cancer cells incapable of reproducing,and returning the cells to the body. The company hopes to beginhuman trials in the second or third quarter of 1992.

The Parkinson's program involves inserting into fibroblasts thegene for tyrosine hydroxylase, an enzyme that converts aprecursor of L-dopa into L-dopa, and surgically implanting thecells into the brain. GeneSys has received a notice ofallowance for a very strong patent on the use of tyrosine forthis application, Hixson said. The program should be in theclinic by the third or fourth quarter of next year, said Carter.

The cardiovascular program, which is in animal studies, isfocused on developing an improved small-diameter vasculargraft. The graft is lined with epithelial cells to which tissueplasminogen activator has been added to prevent clotting.

The hemophilia program, which is in early animal studies, isadding genetically engineered Factor VIII to cells.

GeneSys will have received about $4 million in venturefinancing by the time the merger is completed. Investorsinclude Ventana Partnership III; Forward Ventures; Hixson; andKleiner, Perkins.

The combined company will retain the Somatix name. Themerger has been approved by the boards of both companies. Aproxy statement is expected to be sent to Somatixstockholders in December.

The company's main competition is Genetic Therapy Inc.(NASDAQ:GTII) of Gaithersburg, Md., which is developingvectors for gene therapy.

-- Karen Bernstein BioWorld Staff

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