Abgenix Run-Up In Value Ends Cell Genesys/Genzyme Merger

Cell Genesys spin-off Abgenix' success in marketing its XenoMouse technology has helped terminate a proposed merger between Genzyme and Cell Genesys.

Cell Genesys cited the recent jump in Abgenix' value in announcing its decision to withdraw from the merger Dec. 21.

Cell Genesys noted that the value of its equity in the spin-off had increased from $130 mil., at the time of the merger announcement Oct. 18, to approximately $360 mil., based on Abgenix' Dec. 20 closing price of 106-3/4. The Genzyme agreement valued Cell Genesys at $350 mil.

By the end of the day following Cell Genesys' announcement, Abgenix' stock had increased to 112, making Cell Genesys' 19% stake in the company worth $370 mil.

Genzyme's $350 mil. offer would have represented a $20 mil. loss for Cell Genesys based on the Abgenix portion of its business alone.

Genzyme announced Dec. 22 that it will agree to end the proposed merger and accept a $15 mil. termination fee from Cell Genesys.

Cell Genesys highlighted its strong financial position from the equity investment in Abgenix and $45 mil. in cash at year-end, after payment of the $15 mil. termination fee.

Abgenix develops antibody products through its XenoMouse technology, which uses genetically engineered mice to express human antibodies.

A spate of announcements issued in the past three months may have contributed to the company's soaring stock valuation. Since October, Abgenix has announced the initiation of research collaborations with Chiron, Curagen and Human Genome Sciences, and the expansion of its current agreement with Pfizer.

The company also announced on Dec. 7 the launch of a 92-patient Phase III trial studying its antibody ABX-CBL for steroid-resistant graft-versus-host disease, and encouraging results in a Phase I/II psoriasis trial of ABX-IL8.

Most recently, Abgenix announced Dec. 20 that it had bought out Japan Tobacco's 50% interest in its Xenotech joint venture, thus acquiring full rights to the XenoMouse technology.

In November, Abgenix announced a private placement of 1.8 mil. newly issued shares of stock at $42 per share, which raised $72 mil.

Recent growth of the biotech sector overall could also help explain Abgenix' soaring valuation.

Cell Genesys has also benefited from the trend: the stock closed at 10-7/8 Dec. 21, near its 52-week high of 12. The Genzyme offer of $350 mil. in stock, or $10 per share, represented a 43% premium over Cell Genesys' pre-announcement trading price on Oct. 15 ("The Pink Sheet" Oct. 25, 1999, p. 24).

Gene therapy companies in particular have been thriving on Wall Street, despite increased scrutiny by federal agencies and the press following the Sept. 17 death of a clinical trial subject in a University of Pennsylvania adenoviral gene therapy trial.

At the time of the merger announcement, Cell Genesys' stock price was flat. With the recent death and other media disclosures about adverse event reporting in gene therapy trials seen as likely to taint the gene therapy sector, a merger offer for $350 mil. probably appeared to be the company's best option.

The renewed attention on gene therapy research appears to have led to increased interest in companies pursuing non-adenoviral approaches ("The Pink Sheet" Dec. 6, 1999, p. 14).

Although Cell Genesys' gene therapy GVAX vaccine involves adenoviral vectors, they are used ex vivo, which limits the risk of an immune reaction of the type seen in the U-Penn trial, where the adenoviral vector was injected directly into the intrahepatic artery.

GVAX is in Phase II for prostate cancer and Phase I/II for lung cancer in collaboration with Japan Tobacco. Other projects at Cell Genesys include the use of in vivo retroviral, lentiviral, adenoviral and adeno-associated viral vectors for the treatment cancer, cardiovascular disease, Parkinson's and hemophilia