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This article was originally published in The Gray Sheet

Executive Summary

Rhone-Poulenc Rorer's acquisition of 37% of Applied Immune Sciences will reduce RPR's cash on hand by just $8 mil. The agreement calls for RPR to purchase a 37% stake in AIS for $113 mil. However, RPR CEO Robert Cawthorn told a June 3 press conference that RPR will be able to use a recent $105 mil. settlement with Baxter to pay the bulk of the initial costs without dipping substantially into RPR's own cash reserves, which were $39.5 mil. as of Dec. 31, according to the company's annual report. On May 12, Baxter agreed to pay Rhone-Poulenc Rorer the $105 mil. as part of a settlement of patent litigation over the therapeutic agent Factor VIII. RPR will acquire its 37% interest in AIS through the purchase of 4.3 mil. newly issued shares and 3.1 mil. outstanding shares; the tender price for the outstanding stock is $30 per share. RPR also will receive an option to purchase up to 6 mil. more shares over the next four years at prices between $21-$25. If RPR fully exercises its option, its ownership in AIS would increase to about 60% and its total investment would climb to $250-$300 mil. AIS shares closed June 2 at $19. The June 3 agreement calls for the two firms to establish an R&D collaboration for gene and cell therapies and create a 50/50 joint venture to market and distribute cell therapy products via a global network of Cell Therapy Centers. RPR will contribute up to $30 mil. to the joint venture, which will pay to build and operate nine centers worldwide, the companies said. The agreement is subject to approval by AIS shareholders and regulatory review. "These agreements are a significant strategic step providing RPR with access to a technology of the future and to short term commercial opportunities," RPR's Cawthorn said. Santa Clara, California-based AIS is awaiting 510(k) approval for its CELLector device for purifying bone marrow for use in transplantation. Cawthorn said he expects the device to be cleared for launch "quite quickly." The 510(k) application was filed in April. AIS CEO Thomas Okarma said that the CELLector will have applications in both autologous and allogenic bone marrow transplantation. AIS has several ongoing clinical trials for cell therapy applications in which the CELLector technology is used to select specific cells from a patient that are then biologically modified and reinfused. Initial disease targets are cancer and AIDS. The company is conducting trials in kidney cancer (preliminary results of which were presented at the American Society of Clinical Oncology meeting in May), ovarian cancer and AIDS. A breast cancer therapy trial is scheduled to begin this year. FDA has been working to develop a policy on the regulation of cellular transplants. Okarma told the press conference that he expects AIS' cellular therapies to be regulated as biologicals; AIS is conducting its AIDS and cancer trials under investigational new drug applications. Okarma said he expects that FDA will treat each Cell Therapy Center as a biological manufacturing site requiring approval of an establishment license application. AIS has already set up its first Cell Therapy Center in San Francisco, through which it is conducting its AIDS clinical trial. That center was constructed through a joint venture with Caremark established in December 1991 ("The Gray Sheet" Dec. 23, 1991, p.2). That agreement apparently will be restructured in light of the AIS/RPR joint venture. "Part of our contribution in this arrangement is the contribution of our existing interest in our existing joint ventures," AIS CEO Thomas Okarma told financial analysts June 3. "Together [RPR and AIS] will renegotiate the role of our existing partners that will allow our partners a more appropriate function within the system." For example, he said, AIS would like its agreement with Caremark to focus on home infusion technology. Okarma reminded the analysts that AIS teamed up with Caremark when it was a wholly owned subsidiary of Baxter. Caremark was spun off to Baxter shareholders in late 1992. Baxter has now emerged as one of AIS' competitors in the cell separation/therapy business with its anti-CD34 monoclonal antibody bone marrow purification system ("The Gray Sheet" Feb. 3, 1992, I&W-14). Baxter announced June 3 that it has begun to distribute the Isolex 50 magnetic- stem-cell selection system for research purposes in the U.S. Okarma cited CellPro as AIS' other main competitor, especially in the bone marrow processing field. AIS' CELLector is superior to competing approaches, Okarma maintained, because the monoclonal antibodies used to select cells are "permanently bonded to the device," while competitors' technologies can leave "residual monoclonal antibodies" in the ultimate cell infusion. He argued that MAb contamination can cause patients' immune systems to reject the therapy. A longer-term focus of the agreement, Cawthorn said, is on gene therapy. The two companies believe that the Cell Therapy Centers could ultimately operate as gene therapy centers as well, where cells are genetically rather than biologically modified before being reinfused. RPR announced June 3 that it has licensed rights to an adenovirus vector for gene therapy applications from the French Scientific Research National Center and the Institut Gustave Roussy. The company estimates that by 1994 it will have more than 100 researchers involved in gene therapy. AIS has rights to the Multiple Drug Resistance (MDR) gene, licensed from Genetix in January. Okarma said that the firm's cell separation technology is being used in gene therapy trials for treatment of ADA deficiency. AIS also holds a patent for "the manufacturing process that will enable large-quantity production" of adeno-associated virus for use in gene therapy. AIS was founded in 1985. The firm has raised a total of $149 mil. through venture capital, corporate partnerships and two public offerings. The company's cash burn rate is currently about $20 mil. per year, Okarma said. AIS has eight issued patents and another 10-12 pending, he added.

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