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Biotech / Medical : Cell Genesys (CEGE)

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To: kha vu who wrote (950)	6/12/2000 9:57:00 AM
From: david james	Read Replies (2) of 1298

Cell Genesys Eyes $335m Royalties Brett Pope Jun 12 2000 The trial between biotechs Amgen [AMGN] and Transkaryotic Therapies [TKTX] over the production of erythropoietin (EPO) may have taken a turn as the judge ruled that Transkaryotic did not infringe on one of the five patent claims. I will not go into all the details of the trial here (read Reed Williams? reports for details), but this ruling has positive implications for one of my buy-rated companies, Cell Genesys [CEGE]. Transkaryotic has partnered with Aventis [AVE], a large pharmaceutical company, to develop its novel production method for EPO. The method involves activating a gene in human cells, in contrast with Amgen?s process of isolating the human DNA and putting it into hamster cells to grow. Here?s the good part: the gene activation technology was licensed from Cell Genesys. So what is the potential for Cell Genesys? The company could collect royalties in the high single-digits on any EPO sales by Transkaryotic/Aventis. Amgen?s Epogen anemia drug had $1.8bn in 1999 sales. The drug had $4bn in worldwide sales after including Procrit sales from Amgen?s licensing partner, Johnson & Johnson [JNJ]. If Transkaryotic could capture 25 percent of these sales, Cell Genesys would probably receive $80m to $100m in annual royalties. Using a simple discounted cash flow analysis, the present value of $80m in annual royalties over 10 years would be worth about $335m using a 20 percent discount rate. As of Friday?s close, Cell Genesys? market capitalization was approximately $883m. The value of the company?s cash position and its Abgenix [ABGX] equity stake is $840m. Regardless of the eventual outcome of the trial, the case should legitimize Cell Genesys? gene activation technology and bring about additional licensing opportunities. streetadvisor.com

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