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Executive Summary

Genzyme is spinning off a new R&D entity, Neozyme, via a public offering of 2.5 mil. units that could gross from $57.5 mil. to $62.5 mil. to back the development of a cystic fibrosis protein replacement therapy, a burn treatment and four other drug and diagnostic products. The offering, filed as a red herring prospectus with the Securities and Exchange Commission on Aug. 13, has an anticipated price of $23 to $25 per unit, each unit consisting of one share of Neozyme common stock and one warrant to purchase Genzyme common stock. Underwriters are PaineWebber and Cowen & Company. Neozyme (located in Cambridge, Mass.) was formed in August to "accelerate" the development of six drug and diagnostic products: a recombinant cystic fibrosis transmembrane conductance regulator (CFTR); Thyrogen, a recombinant human thyroid stimulating hormone; Vianain, an enzymatic burn debrider; fetal cell separation products for prenatal testing; direct cholesterol testing products; and pharmaceutical phospholipids. Work began on CFTR for cystic fibrosis in October, one month after publication in Nature of the discovery of the gene thought responsible for respiratory disease. CFTR is envisioned as an aerosol protein therapy to replace the missing protein that is believed to cause the clinical symptoms associated with cystic fibrosis. To date, Genzyme has assembled the DNA coding sequence responsible for directing the production of CFTR in cells and has induced cells to synthesize the protein, the prospectus explains. "Substantial additional funding will be necessary to complete the clinical testing," the company observes. Genzyme is projecting a conservative development time for CFTR. If clinically viable, it is not expected to be approved until the late 1990s. Much further into the pipeline is Neozyme's enzymatic debridement product Vianain for treating severe burns. An IND filing is forecast for the second quarter of 1991. The product combines ananain and comosain, enzymes derived from pineapple stem extract, that are purified, freeze-dried and formulated with a vehicle into a surgical dressing. Vianain would be promoted as "an effective, less expensive and less traumatic" method of debriding severe burn injuries than current enzymatic debridement therapies, which are second-line treatments to surgery because of their relative lack of efficacy and slow mode of action. Neozyme estimates that Vianain could save $5,000-$10,000 per patient, depending on the burn severity, based on shorter hospital stays and lower anesthesia and surgery fees. The Neozyme projects are arrayed across a broad spectrum in terms of probable development time and feasibility. The combination of speculative breakthrough projects and more mundane product improvements is characteristic of Genzyme's record to date. The parent firm has had success at creating and maintaining a flow of sales and earnings from products while developing its first breakthrough product Ceredase. The Gaucher's Disease treatment has emerged as a quasi-commercial product under a Treatment IND with a high cost-recovery charge. Ceredase's NDA will come up for review by FDA's Endocrinologic & Metabolic Drugs Advisory Committee on Oct. 15. Genzyme was informed verbally by FDA of the need to prepare for the upcoming presentation several weeks ago. The Treatment IND for Ceredase was approved in November 1989 ("The Pink Sheet" Nov. 27, p. 7). Among the nearer-term projects in Neozyme's prospective pipeline, a thyroid cancer project is targeted for a mid-1990s NDA filing. Thyrogen has been in development by Genzyme since 1988 as an adjunct to thyroid cancer diagnostic, treatment and monitoring procedures. Neozyme is looking to the first half of 1991 for an IND application and 1994 for an NDA filing. Thyrogen is being developed as an alternative to bovine thyroid stimulating hormone (TSH), which is used infrequently now because of the potential for immune response. Thyrogen, derived from proprietary mammalian cell culture lines and purification processes, virtually eliminates the chance for an immune response since it is almost identical to naturally produced human TSH, Genzyme says. Thyrogen has the potential to improve the sensitivity of screening tests for thyroid cancer; enhance the efficacy of the radioactive iodine injected to destroy thyroid cancer metastases; and improve patient quality of life by shortening the period of time during which elevated thyroid stimulating hormone levels -- and the consequent adverse effects -- are present in patients from the current two to six weeks to three to four days. The direct cholesterol testing products could be the first to reach the market of the Neozyme project. The company forecasts a 510(k) abbreviated FDA approval application for filing in 1991. The line will consist of disposable devices to allow the measurement of low density and/or high density lipoprotein cholesterol. In development since 1989, the cholesterol diagnostics use antibodies that recognize, bind and help remove the cholesterol that is not being measured. Genzyme already has filed for patent protection for both the immunoseparation method and device. Phospholipid production for pharmaceutical product and drug delivery system supply is also projected for commercial introduction soon. In development by Genzyme since 1986, the project has a projected completion date of 1992. The phospholipid technology uses enzymatic synthesis of glycerol-3-phosphate, the prospectus explains, to produce a totally synthetic phospholipid that would overcome the potential for contamination present in purified naturally occurring phospholipids. The prospectus notes that a number of phospholipid drug applications are forecast for the next several years, including liposomal formulations of the antifungals amphotericin B and gentamycin, doxorubicin for chemotherapy, tumor-imaging agents and aerosolized bronchodilators and lung surfactants. Neozyme's line of fetal cell separation products is being developed for use by labs that conduct genetic and prenatal chromosomal testing as a safer method of determining fetal abnormalities than current chorionic villus or amniocentesis testing methods. The FCS products will separate fetal cells from maternal blood samples and are expected to be "combinations of reagents and/or devices." Among the prospective customers is Genzyme's own Integrated Genetics Lab subsidiary. The firm is looking at a 1995 approval date. The proposed spin-off of Neozyme is the sixth major financial move made by Genzyme since August 1989, when it completed the $31.5 mil. Integrated Genetics merger. Although the merger was responsible in part for a $13 mil. loss taken by Genzyme in 1989, the company's other financial indicators remain strong. As of June 30, Genzyme's total capitalization stood at $98.4 mil. and cash and short-term investments totaled $53.5 mil. In November, Genzyme set up the $36.8 mil. Surgical Aids Partnership to develop hyaluronic-acid based biomaterial products. In December, Genzyme sold nearly 3 mil. shares of common stock for net proceeds of $36.8 mil. In February, it bought out the Ceredase development partnership in exchange for 1.4 mil. shares valued at $20.8 mil. Lastly, in May, Integrated Genetics Labs sold $14 mil. worth of its stock to the public, reducing Genzyme's stake in the subsidiary to 54%.



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