Collagen Corp. of Palo Alto, Calif., expects the Securities andExchange Commission this week to approve its plans to spin offCeltrix Laboratories Inc., which is developing drugs based ontransforming growth factor-beta type 2, or TGF.

Under the plan, Collagen expects to distribute 2.3 million Celtrixshares to Collagen shareholders of record on Feb. 15 at a rate ofone Celtrix share for every four Collagen shares they hold.Although Collagen plans to dispose of all Celtrix stock, it expectsto hold warrants to acquire 15 percent of the company, JimMcKinley, Collagen's senior vice president and chief financialofficer, said Monday.

Collagen, which employs 380 people, is cutting Celtrix loosebecause Celtrix's research interests and financial requirementshave diverged from the parent company's, which producescollagen-based products for repairing skin wrinkles and scarsand as a bone replacement for use in oral surgery, McKinleysaid. Two other uses of collagen -- for treating urinaryincontinence and long-bone fractures -- are under review bythe Food and Drug Administration.

Celtrix, which has 70 employees, is working on TGF, which itnow produces through genetic engineering. TGF is in Phase 2clinical trials as a therapy to repair detached retinas and totreat psoriasis. Animal trials indicate that TGF also stimulatesbone and cartilage growth.

Both Collagen and Celtrix are spending between $7 million and$10 million a year on research, but the high costs ofpharmaceutical development mean that Celtrix's financialneeds will increase, McKinley said. -- Rachel Nowak

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