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Executive Summary

Quidel is looking to develop suppressive factor of allergy (SFA) through a joint venture partnership, the company indicated in an initial public offering filed with the Securities and Exchange Commission June 11. Noting that the company is currently working on the refinement of recombinant SFA protein production techniques, the prospectus states that "Quidel anticipates that it will enter into a relationship with a corporate partner to achieve commercialization of SFA." The firm's "current strategy" for the development of therapeutics is "to seek joint ventures and other collaborative arrangements to fund a substantial portion of therapeutic research and development costs, including the cost of human clinical trials," the prospectus states. "No collaborative arrangements have as yet been established," in the therapeutic area. Becton Dickinson has been a marketing partner for Quidel in the diagnostic products business. SFA has potential application in the treatment of "Ige-mediated allergies (hay fever, certain types of asthma, and some food, drug and insect allergies)," the prospectus states. Quidel reports that it "has observed in animal testing that injections of SFA extracted from cell culture have reduced circulating IgE antibodies in a mouse model by over 50% for 45 days." Quidel is also engaged in preliminary research work with two other therapeutic products: D-glutamic acid/D-lysine conjugates for systemic lupus erythematosus and other antibody-mediated autoimmune diseases and allogeneic effect factor for cancer. Discussing its research with D-glutamic acid/D-lysine conjugates (D-GL), the firm stated it "is developing proprietary technology to bind chemically ('conjugate') to polymers of D-GL proteins or small molecules known to activate receptors. The resulting D-GL conjugates appear to bind to and stabilize the receptor, thereby preventing the receptor's message from being internalized within the cell." The prospectus explains that "by blocking the receptor-mediated activity of specialized cells which are involved in certain disease mechanisms, researchers hope to interrupt the disease process and thus possibly to cure the disease or to halt its progress." Quidel is now doing dose response and toxicity studies with D-GL in animals. "If animal experiments are successful and if D-GL appears to be within an acceptable toxicological range, the company intends to file an IND with the FDA to use D-GL technology for the treatment of patients suffering from systemic lupus erythematosus," the prospectus states. The company noted that it will pursue development of the technology for the treatment of other "antibody-mediated autoimmune diseases, such as myasthenia gravis," if it is "successful in establishing efficacy and lack of toxicity" in lupus. Quidel licenses the D-GL technology from Scripps Clinic. Quidel's research on allogeneic effect factor (AEF) is also in the early development states. The firm "has established laboratory assays which detect the biological activity of AEF" which it will use "in an effort to isolate, refine and characterize the protein." Quidel commented that "unlike other lymphokines, such as interleukin-2, AEF appears to stimulate the differentiation of antibody-producing cells in the absence of certain other factors normally required for such differentiation." AEF has "been experimentally observed to activate the killer cells of the body's immune system to detect and destroy tumor cells," the prospectus states. Quidel, founded in La Jolla, California in 1981, currently markets three diagnostic tests in the U.S. -- a pregnancy test introduced in February 1985, an ovulation test launched in October 1985, and a strep test, introduced in December 1985. The company has developed OTC versions of both the pregnancy and ovulation tests, which have not yet been introduced to the U.S. market. In the U.S., Becton Dickinson has marketing rights for the professional and consumer markets for the three products. Quidel sells to the hospital and clinical lab market through Fisher Scientific. In the diagnostic area, the firms newest product is a multiple assay dipstick for a panel of allergenic substances causing the "majority" of diagnosesd allergies, the prospectus states. FDA cleared the test for marketing in May. Quidel noted that the allergy test product is the first in a planned line of diagnostic products which will combine a number of related tests on a single dipstick. The preliminary prospectus registers 2 mil. shares of common, with an expected offering price of $9 to $11 a share. Shearson Lehman Brothers, Montgomery Securities and L. F. Rothschild, Unterberg, Towbin are underwriting. Quidel is looking to raise approximately $20 mil. from the offering. Commenting on how the firm would use the proceeds, the prospectus states that "the company believes that it will require at least $4 mil. in capital expenditures for protein purification and expansion of diagnostic manufacturing plus approximately $6 mil. in working capital to support inventories and accounts receivable related to product sales." A "substantial portion of the balance," the company said, will be used "to support research and development of therapeutic products and additional diagnostic products." As of March 31, Quidel had $3.9 mil. in cash and cash investments and $4.4 mil. designated as working capital. According to the prospectus, the company generated revenues of $1.1 mil. from sales in 1985. Sales in the first quarter of 1986, ended March 31, brought in $1.2 mil.

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