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Executive Summary

GENZYME SPIN-OFF NEOZYME II SEEKING $73.5 MIL. FOR CYSTIC FIBROSIS R&D via an initial public offering of 2.1 mil. units priced at an anticipated $35 per unit. Neozyme II was formed in March to focus exclusively on the development of treatments for cystic fibrosis by protein replacement or gene therapy; Genzyme expects proceeds from the proposed offering will fund R&D through approximately 1996 and that additional funds will be needed to complete clinical testing and commercialize the products. The Neozyme II offering represents the second time in two years that Genzyme has used its work on a cystic fibrosis transmembrane conductance regulator (CFTR) protein to raise money by forming an R&D spin-off. CFTR is one of six drug and diagnostic projects that constitute Neozyme I, which raised $47.4 mil. in an October 1990 IPO. If the Neozyme II offering is successful, Genzyme will pay $23 mil. to the initial spin-off to reassign the CFTR rights ("The Pink Sheet" March 9, In Brief). Genzyme expects to begin clinical trials on CFTR protein therapy in 1994, followed by pivotal trials in 1995 and a PLA filing in 1996. The protein replacement product has been designated an orphan drug. Neozyme II's R&D program will include development of recombinant cell lines capable of producing large quantities of CFTR, as well as evaluation of an alternative production method for CFTR involving transgenic animals, the prospectus notes. Preclinical studies will evaluate potential delivery methods, which include "formulation of the protein into artificial membranes, such as liposomes, or incorporation of the protein into an inactivated virus which naturally targets airway cells." The protein replacement product is envisioned as an aerosol formulation of CFTR that would be administered by inhalation. The proposed gene therapy product will also likely be an inhalant, Genzyme said. The prospectus notes that scientists at the National Institutes of Health recently succeeded in delivering the CFTR gene to cotton rat lungs using an altered virus. Genzyme will continue to "identify and optimize the vector for delivering the CFTR gene to the respiratory tract" with the goal of starting preliminary clinical trials by 1994. In addition to exercising its purchase option for the cystic fibrosis project, Genzyme is considering buying back two other Neozyme I programs in 1992 for a total of $13 mil., the prospectus states. A likely prospect is the firm's program for developing cholesterol testing products that allow the direct measurement of low density lipoprotein (LDL) or high density lipoprotein (HDL) cholesterol from blood samples. Genzyme plans to file 510k diagnostic marketing applications with FDA for both products this year. Prior to the current proposed offering, Genzyme raised $97.3 mil. in October 1991 with the issue of $100 mil. of 6-3/4% convertible subordinated notes due 2001 and received $136.4 mil. in net proceeds from the sale of 4 mil. shares of common stock in April. The firm is projecting U.S. sales of its Ceredase enzyme for Gaucher's disease will be approximately $80 mil. in 1992. A major projected expense for the firm is the construction of a $75 mil. mammalian cell manufacturing plant to be completed in 1994. The Neozyme II offering consists of 2.1 mil. units, with each unit including one share of Neozyme II commmon stock, one warrant to purchase one share of Genzyme and one callable warrant to purchase one share of Genzyme. The Neozyme II shares are subject to a purchase option under which Genzyme could buy back the stock for $48 per share until the end of 1993, with the amount increasing to $62 through 1994, $83 through 1995 and $117 per share by year-end 1996.

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