CHIRON AQUIRES 19.4% STAKE IN VIAGENE

CHIRON AQUIRES 19.4% STAKE IN VIAGENE as part of a collaboration announced Nov. 16 in which the two firms will pool their resources to develop treatments for cancer and other diseases using gene therapy technology. Chiron is investing $32 mil. in equity and initial research funding in exchange for exclusive worldwide rights to market any products developed under the agreement; Viagene will be the exclusive manufacturer and supplier. The agreement includes a $17.6 mil. purchase by Chiron of 1.6 mil. shares of Viagene preferred stock, convertible at $11 per share; $2.4 mil. in warrants that give Chiron the option to purchase an additional 2.7 mil. shares for $30 mil.; and an initial $12 mil. in R&D funding. Chiron's 19.4% stock ownership will drop to 14.9% if Viagene's proposed initial public offering is completed ("The Pink Sheet" Nov. 15, p. 11). A Chiron executive may be appointed to Viagene's board of directors under the terms of the deal. The R&D costs will be evenly divided between the two firms. Viagene will finance the first $12 mil. in expenses and be responsible for research prior to an IND filing; Chiron will provide the next $12 mil. and direct clinical trials and registration. After the $24 mil. mark, the two companies will split costs. The R&D program will be run by a committee with equal numbers of Viagene and Chiron representatives. San Diego-based Viagene and Emeryville, Calif.-based Chiron will work together to create cancer treatments based on gene transfer techniques developed by Viagene. The pact also covers gene therapy drug activation technology for prevention and treatment of a "broad range of diseases." The collaboration will combine Viagene's viral vector technology with Chiron's rights to its multi-drug resistance gene and genes for interleukin-2, tumor necrosis factor and macrophage colony stimulating factor. The agreement does not specify the types of cancer to be targeted. Viagene is now focusing on two types of cancer treatments; one program is investigating "immunotherapeutics where the specific tumor antigen in not known" and has produced a melanoma treatment now in Phase I clinical trials. A second program is designed to treat cancer where specific antigens have been identified; cancers targeted for development using this approach include cervical, breast and pancreatic cancers. In addition to the potential $50 mil. equity investment by Chiron, Viagene is in the process of trying to raise $27 mil. through an initial public offering of 2.5 mil. shares of common stock at an estimated price of $11 to $13 per share. If the offering is successful, there will be 10.7 mil. shares outstanding. The offering was filed Oct. 29, after a previous filing in February, and amended Nov. 16 to include information concerning the Chiron collaboration. The agreement with Chiron is Viagene's third collaboration; it is also working with Japan's Green Cross Corp. on HIV gene therapy research and with Bayer/Miles to develop a Factor VIII gene therapy for hemophilia A. Some of the money for the Viagene deal may come from two recent private sales. Chiron announced Nov. 17 that it has raised proceeds of $200.9 mil. from the completed sale of 1.9% discount convertible subordinated notes due 2000. The notes are convertible into 2.1 mil. shares. Morgan Stanley and Robertson, Stephens managed the offering. Separately, Chiron sold to Ciba-Geigy a note with net proceeds of $8.5 mil. Terms were the same as for the private placement. Ciba and Chiron are joint venture partners in the vaccine R&D venture Biocine.