Liposome Technology Inc. and Escagenetics Corp. said Thursdaythat they will explore combining LTI's Stealth liposomes withtaxol produced by Escagenetics.

Taxol, currently derived from the bark and needles of thePacific yew tree, has been shown to be effective in womenwith advanced ovarian and breast cancer.

Each company will bear its own costs in an exploratory phase,which could take three to six months or longer, said RaymondMoshy, president and chief executive of Escagenetics. The SanCarlos, Calif., company (AMEX:ESN) is spending more than $1million a year to develop taxol using its PhytoProduction cellculture technology, Moshy said.

If the initial phase is successful, Escagenetics will supplytaxol to Liposome Technology (NASDAQ:LTIZ) of Menlo Park,Calif., which will be responsible for clinical development andmarketing.

Stealth technology coats liposomes with polyethylene glycol,enabling them to elude the body's immune system and remain incirculation longer than conventional liposomes. The technologymay permit delivery of higher doses while avoiding some oftaxol's side-effects, which include hair loss and neurologicaldamage, Moshy said.

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