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TRANSGENIC SCIENCES AGREEMENT FOR DRUG PRODUCTION IN ANIMALS

Executive Summary

TRANSGENIC SCIENCES AGREEMENT FOR DRUG PRODUCTION IN ANIMALS is in the discussion phase with the British firm Animal Biotechnology Cambridge, Ltd. (ABC), Transgenic Sciences reported in its initial public stock offering. The registration statement was filed with the Securities and Exchange Commission on Jan. 6. Under the proposed agreement, the prospectus says, Transgenic "will seek to develop DNA constructs" to be inserted by ABC scientists into mouse embryos. The DNA molecules would be coded to produce in adult mouse milk "human or animal proteins which are potential pharmaceuticals," according to the filing. Pharmaceutical production could be scaled up through larger animals, the firm notes. The negotiations follow earlier agreements with Tufts University School of Veterinary Medicine to produce pharmaceuticals in chicken eggs and with the University of Massachusetts for the production of pharmaceuticals in mouse milk. Transgenic Sciences entered into the three-year agreement with Tufts University in May 1988 to develop transgenic chickens capable of producing pharmaceuticals in their eggs. The research costs to the company are estimated to be approximately $ 120,000 in exchange for rights to "own any patentable inventions or processes and . . . exclusive commercial rights to the chicken breeds." Transgenic Sciences will pay Tufts a 3% royalty on commercial sales, if any, of the pharmaceutical proteins produced in the chicken eggs, according to the prospectus. Under the terms of the University of Massachusetts agreement, reached in October 1988, the university "will own all inventions conceived or reduced to practice during the term of the agreement," the filing says, and Transgenic Sciences will "retain a non-exclusive royalty free right to use the patents, if any, obtained by the university . . . and to use the results" of the project. The company expects to invest $ 10,000 in the project and, if it is successful, "will seek to obtain corporate sponsorship to fund studies of larger animals." The offering is for 900,000 units of stock at $ 6 per unit, for an aggregate offering price of $ 6.2 mil. A unit consists of three shares, with each share worth approximately $ 2. In addition, each unit contains two redeemable Class A warrants. The offering consists of a total of 2.7 mil. shares of common stock and 1.8 mil. redeemable Class A warrants. D. H. Blair & Co. is the underwriter. Worcester, Mass.-based Transgenic Sciences commenced operations in July 1987. The firm was founded by Donald Hudson and Chamer Wei, PhD. Hudson who had been president, CEO and chairman since the company's inception, recently turned those duties over, and will continue with the company as an advisor and director. Wei acts as VP/R&D, treasurer and a director. Hudson, 55, served a brief term as president of Organogenesis in 1985, after serving as exec VP, treasurer and a director of Integrated Genetics from 1981 to 1985. Wei, 44, was senior scientist of Bristol Myers' Oncogen Division from 1985 to 1987, after a four year term (1982-1985) as senior scientist at Integrated Genetics. Wei joined Integrated Genetics after eight years at NIH. Hudson and Wei each own over 20% of the company's outstanding shares of common stock. Their holdings will be reduced by dilution to 9.5% and 8.1%, respectively, after the offering is completed. A former Genzyme exec, James Sherblom, 33, was recently named chairman and CEO, effective in early March. Sherblom was senior VP finance and administration and chief financial officer at Genzyme. He had been with the company since 1984. Sherblom will be allotted 200,000 shares of common stock in the company at $ .23 per share, the filing said. While the production of human and animal protein pharmaceuticals in transgenic animals is the firm's long term goal, in the short term, Transgenic plans to develop an in vitro toxicology test to screen for the carcinogenic and mutagenic potential of various chemical, pharmaceutical and cosmetics substances. The company estimates that those products are three years away from the market.

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