By Mary Welch

Visible Genetics Inc. and PE Biosystems entered a $25 million worldwide licensing and collaboration agreement that gives Visible Genetics access to certain patents and intellectual property owned or exclusively licensed by PE Biosystems.

The agreement enables Visible Genetics (VGI) to use certain PE Biosystems technology to manufacture and sell DNA sequencing instruments. It also allows VGI to manufacture and sell clinical sequencing kits to run on DNA sequencing instruments manufactured by VGI, PE Biosystems and third parties.

In addition, the companies will collaborate to provide access to technology to help VGI's development and commercialization of new diagnostic tests using the licensed technology, particularly as it relates to the detection of disease states, genetic markers and infectious processes.

As part of the agreement, Toronto-based VGI will pay PE Biosystems a $25 million licensing fee over four years, as well as royalties based on sales, in return for access to the technology and installed instrument customer base.

"This is very important for us," said Richard Daly, president and CEO of Visible Genetics. "It is critical for us to get access to PE Biosystems' technology in order to really expand the commercialization of the clinical sequencing arena. We can now make four-color sequencing kits that will run on their instruments."

Elise Wang, first vice president at PaineWebber Inc. in New York, wrote in a research report that the deal provides "significant leverage for Visible Genetics as PE Biosystems' instruments are widely used for DNA sequencing and currently represent an installed base of approximately 30,000 systems."

It also is a "major step in Visible Genetics' efforts to create an open system that is applicable to a wide number of platforms," she wrote. "We believe this agreement may lead to a broader collaboration with PE Biosystems as Visible Genetics has significant expertise in developing genotypic test kits and software for clinical applications."

Daly said the deal opens the door to "future collaborations in the area of identifying additional targets in the clinical setting."

Another positive aspect of the deal is that PE Biosystems, of Foster City, Calif., dropped its patent infringement suit against VGI. The company filed the suit in January. It involved two patents licensed to PE Biosystems from the California Institute of Technology.

"That was certainly an important element to the deal," Daly said. "But not the most important one. The most important ones are accessing their installed base and collaborations in the future."

In addition, VGI gains access to other PE Biosystems chemistry patents, which are for the manufacture of certain reagent products to be used on PE Biosystems-manufactured instruments, as well as third-party sequencing instruments.

VGI now will manufacture and sell clinical sequencing kits for its OpenGene clinical sequencing systems, as well as PE Biosystems instruments. The OpenGene system employs patented CLIP technology - a single-step, bi-directional sequencing method that significantly reduces the time and cost involved in identifying clinically relevant genetic information. The OpenGene System consists of automated DNA sequencers, disposable gel cassettes, related equipment and software and disease-specific GeneKits. The company is targeting HIV as its first clinical diagnostic application.

Last month VGI raised $76 million in a follow-on public offering aimed at providing working capital as it moves to provide a genetic diagnostic for HIV genotyping. (See BioWorld Today, March 31, 2000, p. 1.)

Visible Genetics' stock (NASDAQ:VIGN) closed Tuesday at $45.812, up $4.875. PE Biosystems (NYSE:PEB) closed at $79.50, up $7.562.