By Lisa Seachrist

Washington Editor

Frustrated by the slow pace of regulatory review, PE Biosystems and Third Wave Technologies Inc. abandoned their planned merger in order to get back to the business of developing premier technologies to analyze single nucleotide polymorphisms (SNPs).

The merger, announced in January and valued at $330 million to Third Wave at the time, fell victim to enhanced scrutiny over the past four months by the Justice Department. The department was evaluating the merger for potential monopoly problems and needed to sign off on the deal before it could take effect.

"The Justice Department is paying particular attention to emerging technologies with large potential markets when they examine mergers," said Lance Fors, CEO of privately held Third Wave, of Madison, Wis. "SNP analysis fits this new focus. Everybody thinks its going to be a big market; nobody can be quite certain how big the market will be."

Under the terms of the proposed merger, Foster City, Calif.-based PE Biosystems, a PE Corp. business, would have acquired Third Wave's DNA analysis method, called Invader, in an all-stock transaction. The Invader technology then would have been merged and optimized with PE Biosystems' real-time sequencing detection system to create a method for developing cost-effective, high-throughput assays. (See BioWorld Today, Jan. 25, 2000, p. 1.)

"Obviously, we can't have the same relationship as we would have had after the merger," said Michael Hunkapiller, senior vice president of PE Corp. and president of PE Biosystems. "But the strategic relationship is still there."

By ending the merger plans, the companies have freed themselves to enter collaborations with third parties to install the two technologies. With the merger pending, the companies were required by law to act as independent entities, making it difficult for them to establish joint collaborations.

Third Wave's Invader technology employs two nucleic acid probes, one of which is recognized and cleaved by an enzyme, to identify a specific sequence of DNA or RNA. The presence of the released cleaved probe then can be measured using existing readout devices such as microtiter plate readers, mass spectrometry and DNA chips.

PE Biosystems is looking to add Invader technology to its Sequence Detection systems to accelerate the move toward personalized medicine by enabling large-scale testing of SNPs.

"We have many synergies," Fors said. "Our goal at Third Wave is to install Invader technology as the method of choice for detecting genetic variations."

The two companies have already made inroads into the market with a product they are developing. The companies intend to launch their initial SNP detection product later this year for use in the Japanese Millennium project. In addition, Fors said the companies have been approached by "very large customers" interested in the technology.

"It's pretty much a non-event for both companies," said Eric Schmidt, vice president of SG Cowen Securities Corp. in New York. "It's a bit early to talk about what their future arrangement will be. But we can expect a formal agreement in the next month or two."

Hunkapiller said the two companies would establish a formal agreement as soon as possible. He noted the companies would have preferred to see their original merger proceed without a hitch, "but there is more than one way to do things, and setting up a collaboration isn't a new thing for us."

Had the merger taken place, Third Wave would have become a publicly traded company in the process. Fors said the company would look at all options open to it to rapidly develop the new technology.

PE Biosystems stock (NYSE:PEB) closed Friday at $51.50, down 75 cents.