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SMITHKLINE/APPLIED MICROBIOLOGY RECOMBINANT PRODUCTION AGREEMENT

Executive Summary

SMITHKLINE/APPLIED MICROBIOLOGY RECOMBINANT PRODUCTION AGREEMENT covers tissue plasminogen activator (TPA) and hepatitis B pre-S antigen, the Brooklyn, N.Y.-based research start-up said in a recent registration statement detailing its initial public offering. The filing states that "under an agreement with SmithKline," Applied Microbiology "will attempt to elicit protein production from five genes to be provided by SmithKline, two of which code for the following proteins: tissue plasminogen activator (TPA) and hepatitis B pre-S antigen." The agreement provides that by July 8, Applied Microbiology will complete "feasibility studies to determine the productive capacity" of the proteins through its cloning system. Applied Microbiology licenses the cloning system, which is based on B. subtilis -- a gram positive bacterium -- and other organisms, from the Public Health Research Institute of New York (PHRI). "Under the agreement, SmithKline has a 90-day right of first refusal, during a three-year period, to license any new technology developed under the agreement for purposes relating to the five proteins under study." The filing notes that Applied Microbiology "will receive $10,000 payment to defray costs of the feasibility study." The SmithKline agreement also contains "non-compete and confidentiality restrictions relating to the mentioned proteins," the prospectus states. Applied Microbiology was organized in 1983 to "develop and market commercial applications of research and technical know-how of various academic institutions." To date, the filing notes, the only "contractual liason developed by the company" has been with PHRI. Under the agreement with PHRI, Applied Microbiology "has agreed to fund research regarding the production of proteins in Bacilli and has the option, by providing funding, to acquire an exclusive license to develop any and all other technology which might arise from basic research done at PHRI," the prospectus states. Discussing the cloning system, the filing notes that Applied Microbiology has "modified B. subtilis so as to make certain implanted genes more stable and to remove detrimental proteases, and is attempting further to improve the performance of B. subtilis in these respects." Applied Microbiology has "used B. subtilis to produce a bacteriolytic agent, staphylococcal nuclease, toxic shock syndrome antigen and a herpes viral antigen," the prospectus states. Applied Microbiology is looking to raise $3.5 mil. via its initial offering of 583,500 securities units, each consisting of two shares of common stock and a redeemable warrant, at a proposed maximum offering price of $6. Each warrant entitles the holder to purchase one share of common stock at a price of $6 until 1991. The offering is being managed bt Datek Securities Corp.

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