By Kim Coghill

Washington Editor

In a little more than two months, Deltagen Inc. has snagged another deal to research and develop secreted proteins.

This time Deltagen will work on about 200 novel secreted proteins provided by Hyseq Inc., of Sunnyvale, Calif. Hyseq will pay Deltagen about $10 million in research and development payments over two years, and Deltagen will receive about $10 million in equity proceeds from the sale of 1.51 million shares of common stock to George Rathmann, chairman of Hyseq. Other terms of the agreement call for the companies to share some costs and to split equally any targets developed. The companies did not specify diseases they will research.

¿This is another step along the way,¿ William Matthews, president and CEO of Redwood City, Calif.-based Deltagen, told BioWorld Today. ¿We¿ve built an extremely strong business model whereby we are generating revenues from our database sales and we are bringing drugs to market ourselves around secreted proteins. It is just another example of the power of our technology and this is something we will continue to do. Relationships with large entities like Eli Lilly, and small companies like Hyseq that have been creative, are the theme of our moving forward.¿

Deltagen and Eli Lilly & Co., of Indianapolis, entered a deal in August calling for Deltagen to evaluate and potentially develop secreted proteins using mouse knockout models to generate mammalian gene function data. Deltagen did not release financial details surrounding that deal. (See BioWorld Today, Aug. 3, 2001.)

Hyseq will provide Deltagen with the secreted proteins from its portfolio. ¿They have put together a series of patent filings around rarely expressed and novel secreted proteins from the genome,¿ Matthews said. ¿To get strong patent coverage, you are going to need to understand the function utility of the gene.¿

And Matthews said that¿s what Deltagen does. ¿By actually determining the function utility of these genes and the therapeutic value of these genes, we put together a very strong IP position by combining composition of matter that Hyseq has filed on, and the vital function and utility that Deltagen brings forward.¿

Deltagen owns the DeltaBase technology that accelerates the drug discovery process by enabling researchers to move directly from gene identification to target validation. The company has several subscribers to the technology, including GlaxoSmithKline plc, of London, and Pfizer Inc., of New York. In mid-summer, Deltagen purchased Salt Lake City-based Arcaris Inc. in a deal worth $12.5 million.

Deltagen¿s stock (NASDAQ:DGEN) closed Wednesday at $6.32, up 73 cents, or 13 percent, while Hyseq¿s stock (NASDAQ:HYSQ) closed at $8.93, down 30 cents.

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