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Executive Summary

GENETICS INSTITUTE AND YAMANOUCHI KNIT BONE GROWTH FACTOR PACT to fund the U.S. development and commercialization of bone morphogenetic proteins (BMPs) and to form a joint venture in Japan to commercialize and market BMPs and Genetics Institute products in the pipeline. The two-part agreement was announced at a May 21 press conference in New York City by Genetics Institute President and CEO Gabriel Schmergel and Yamanouchi Pharmaceutical Co. Ltd. of Tokyo Chairman Shigeo Morioka. BMPs, human recombinant proteins that stimulate growth of cartilage and bone, are expected to be useful in treating a variety of bone-growth related indications. Potential uses include healing of non-healing fractures, replacement for autologous bone graft procedures, and bone loss associated with periodontal disease and certain types of cancers. Genetics Institute has identified eight proteins to date. The company expects to begin clinical trials in 1991. Asked what indications were being given top priority, Schmergel said non-union fractures and better fixation -- getting the new bone to surround more tightly -- for orthopedic implants. Morioka indicated that BMP use in treating osteoporosis will come later. Discussing the advantages his company foresees for BMPs over existing therapy, Schmergel said: "These products are pure, these products are easy to use; these products are not immunogenic" and "there will be no limitation of supply." Because BMPs present the potential of doing away with a second surgical procedure in autologous bone grafts, they also offer the potential for lowering costs and reducing patient risk, the biotech firm's exec said. Under the first part of the agreement, Genetics Institute will provide "some cash" and the product rights to a U.S.-based developmental partnership. Yamanouchi will provide cash to "equalize the relative contributions of both parties," Schmergel explained. Neither company would detail the specific costs of the project. However, under the agreement, the partnership will fund development of the BMPs through Phase II. Genetics Institute predicted that the development costs through marketing application would be in line with average new protein drug R&D figures, which the company put at around $100 mil. Genetics Institute retains all R&D responsibilities for the partnership, exclusive worldwide manufacturing and supply rights, and exclusive North American marketing rights. A separate joint venture with Yamanouchi will hold marketing rights in Japan. Elsewhere, Genetics Institute and Yamanouchi plan to sublicense marketing rights to local pharmaceutical companies. Under the second part of the agreement, a separate joint venture will be established in Japan under its own board of directors. Initially, Yamanouchi will provide the clinical and regulatory capabilities. The formation of the joint venture allows Genetics Institute to establish a direct pharmaceutical presence in Japan, while giving Yamanouchi access to the BMP products as well as first rights of refusal to market future products downstream in the U.S. firm's pipeline. Genetics Institute was issued a U.S. patent for the bone growth proteins last year and has other patents pending. The biotech firm predicted that the potential worldwide market for bone growth proteins will exceed $2 bil. by the second half of the decade. Morioka predicted the market potential in Japan could reach $300-$500 mil., depending upon product indications. Morioka characterized the dual agreements as a means of expanding the Japanese firm's global reach in the pharmaceutical area. Last May, Yamanouchi moved into the U.S. vitamin/nutritional products market with its acquisition of Shaklee. The Yamanouchi exec is forecasting combined Shaklee U.S. and Japan sales of $2 bil. by 1991. The Yamanouchi pact marks Genetics Institute's third relationship with a Japanese company. The biotech firm has licensed rights to its recombinant erythropoietin productMarogento an Upjohn/Chugai joint venture. Genetics Institute also has deals covering development and marketing in the Far East with Suntory -- for novel plasminogen activator; and with Morinaga Milk Industry -- for macrophage-colony stimulating factor. Genetics Institute is not the only company working on the bone growth proteins. Hopkinton, Mass.-based Creative BioMolecules is developing Bone Inducing Protein (BIP) in conjunction with Stryker, its marketing partner, the company's business development manager, Marc Charette, PhD, told a recent conference sponsored by F-D-C Reports, Inc. "Rumor has it" that Genentech is also working on the bone growth proteins, Charette said.

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