In the latest example of the consolidating biotechnology industry, Genetic Therapy Inc. agreed yesterday to be acquired by a Swiss pharmaceutical and food conglomerate for roughly $295 million.
The purchase of the Gaithersburg-based genetic research firm by Sandoz AG is expected to provide Genetic Therapy with not only an immediate infusion of cash, but the resources for future research and development activities.
Most immediately, the Sandoz investment will provide Genetic Therapy with the necessary capital -- estimated at between $400 million and $600 million -- required to develop, test and market a new treatment used in the treatment of malignant brain tumors in children.
"Developing any pharmaceutical product, as we have found, takes vast amounts of capital," said M. James Barrett, Genetic Therapy's chairman and chief executive. "As an independent public company, financing was always uppermost in our minds. With Sandoz, decisions can now be made on the merits of a program, instead of being made on the basis of financing."
The brain tumor treatment, which Genetic Therapy is developing in conjunction with Sandoz, involves injecting cells into patients with tumors following surgery. It is undergoing clinical trials at three American universities.
Genetic Therapy had previously received an exclusive license to commercialize the treatment from the National Institutes of Health. About 8,000 infants and children are affected by brain tumors in the United States and Europe each year.
In addition to capital, the Swiss firm is expected to provide Genetic Therapy with marketing, product development, regulatory and international sales expertise.
"This transaction reflects the realities of the biotech industry today," said Charles W. Newhall III, a Genetic Therapy board member and general partner of venture capitalist firm New Enterprise Associates Inc., which owns nearly 5 percent of the company's outstanding shares. "The model for fund-raising in the industry has changed."
Sandoz last year had $12.3 billion in sales and operations in more than 60 countries, and purchased baby food manufacturer Gerber Products Co. for $3.7 billion.
For Sandoz, the Genetic Therapy acquisition establishes an immediate entry into both the evolving and growing genetic research industry and the U.S. market. It hopes to complete the transaction by Aug. 10.
"As science evolves, so does judgment," said Dr. Daniel Vasella, chief executive of Sandoz Pharma Ltd., in an interview yesterday from Switzerland. "And we believe genetic therapy will become an increasingly important practice in the next century."
Sandoz is willing to wait at least that long. The Swiss company said it doesn't expect Genetic Therapy to contribute to its revenues until at least 2000, when it may begin manufacturing and marketing of its brain tumor treatment.
"There is no question this is a long-term investment," Mr. Vasella said. "The relevant question for us is, 'Where is the technical know-how?' "
Sandoz expects to complete the Genetic Therapy takeover by buying its 12.6 million outstanding shares of stock for $21 per share. Thus far, Sandoz has reached agreement to purchase 4.2 million shares, which will raise its stake in Genetic Therapy to 35.6 percent.
The news of the acquisition sent Genetic Therapy shares skyrocketing, closing up 37 percent to $20.87 per common share from last week. The $5.62 per share increase, on a volume of 1.57 million shares traded, was the largest in Genetic Therapy's nine-year history.
Sandoz has had a relationship with Genetic Therapy since November 1991, when it invested $10 million through a stock purchase and pledged millions for research. In 1993 and 1994, Sandoz granted Genetic Therapy $8 million for research.
"This comes as little surprise, because Sandoz has been involved with them for years," said R. Brandon Fradd, a Montgomery Securities Inc. analyst who tracks Genetic Therapy.
"I think it's a great move. It provides them with marketing muscle, and resources to develop products internationally."
Like most emerging biotechnology companies, though, Genetic Therapy has maintained a less than impressive balance sheet. Last year, for instance, the company posted a net loss of $5.5 million, or 42 cents per share, its best year since 1991.
Still, analysts noted that its sales of $14.1 million in 1994, a threefold jump from the previous year, combined with a strong asset base of $80 million, made Genetic Therapy one of the nation's leading biotechnology firms.
In addition to the brain tumor treatment, Genetic Therapy is also working on ways to combat cancer, cystic fibrosis, HIV and hemophilia. The company has been issued 50 patents for its work.
GENTIC THERAPY INC.
Headquarters: Gaithersburg, Md.
Businesses: Gene therapy research and development
Chief executive: M.. James Barrett
1994 Revenues: $14.1 million
1994 Earnings (Loss): ($5.5 million)
Facilities: Headquarters and research laboratory
Headquarters: Basel, Switzerland
Employees: 50,000 worldwide
Businesses: Pharmaceuticals, nutrition, agriculture, construction and environment
Chief executive: Marc Moret
1994 Revenues: $12.3 billion
1994 Earnings: $1.49 billion
Facilities: Operations and joint ventures in 64 countries