By Karen Pihl-Carey

As Hyseq Inc.¿s gene discovery work winds down, the company is branching out with American Cyanamid Co. to discover and develop gene products useful in the agricultural field.

Hyseq will receive $60 million over the three-and-a-half-year collaboration, in return for using its proprietary technology and expertise to develop products to help increase crop production, as well as crop protection, and products to serve as nutraceuticals, human and animal foods and plant-based pharmaceuticals.

¿We¿re very excited to be working with American Cyanamid,¿ said Lewis Gruber, president and CEO of Hyseq, of Sunnyvale, Calif. ¿The team is very committed to understanding how these genomes are working to make better products.¿

Gruber said this is the company¿s first focus on the agricultural field, an area in which American Cyanamid specializes. That company, based in Parsippany, N.J., is a subsidiary of American Home Products Corp. It develops and markets crop protection products, such as herbicides, insecticides and fungicides, for agricultural, specialty and consumer markets. The company first marketed imidazolinone-tolerant corn in 1992.

The exclusive agricultural gene product agreement involves Hyseq¿s high-throughput genomics and bioinformatics technologies.

¿We will be able to branch out into a wide variety of genomes to better understand how genes work in all living things, which adds value to our biopharmaceutical gene business,¿ Gruber told BioWorld Today. ¿In addition, because our gene discovery efforts are winding down ¿ we¿ve found just about all human genes ¿ we have a large capacity in which we can do other work with other partners, and this provides a great way for providing us overhead. So we have a profit motive, the research is paid for, and we are well on our way to understanding how genes work.¿

As of Sept. 30, Hyseq had $32 million in cash, cash equivalents, short-term investments and cash on deposit. The $60 million that Hyseq will receive from American Cyanamid includes research support and up-front payments, but no milestones. It is guaranteed, as long as Hyseq completes the work. The amount of the up-front payment is yet to be determined, Gruber said.

Both Hyseq and American Cyanamid will have non-exclusive rights to use developed products for applications outside of agriculture. They each would receive single-digit royalty payments when the other company takes to market a product developed through the collaboration.

¿They [American Cyanamid¿s rights] are exclusive in the products that come out of this in the agricultural field. In the pharmaceutical area, we [both] have the rights for products in that area,¿ Gruber said. ¿They¿re interested in nutraceuticals and if some particular plant product should prove useful as a pharmaceutical. From our standpoint, we¿re interested in pharmaceuticals more closely related to human products.¿

Using its technology, Hyseq has sifted through more than 12 million samples for internal use and more than 6 million samples for its partners in order to target pharmaceutical product candidates. Gruber said the collaboration will provide the largest amount of information available on genes with agricultural significance. It also may be extended for more years and more money, if both parties agree, he said.

Hyseq has two drug candidates in the preclinical stage, IL-1Hy1 as a potential anti-inflammatory therapeutic and CD39L4 as a potential anti-clotting therapeutic.

Hyseq also has its HyChip system, a universal sequencing chip for research and diagnostic applications, which is partnered with PE Corp.

The sequencing technology has been the subject of a lawsuit with Affymetrix Inc., of Santa Clara, Calif. Hyseq filed a suit against Affymetrix in March 1997, alleging Affymetrix had incorporated into its GeneChip system Hyseq¿s patented sequencing by hybridization method of decoding genetic information. Affymetrix then filed a suit against Hyseq in August 1998, alleging it had infringed Affymetrix¿s patents. The suits are expected to go to trial in 2000.

In September, Hyseq launched its web site, GeneSolutions.com, to provide researchers access to results from more than 12 million DNA samples analyzed by the company.

Hyseq¿s stock (NASDAQ:HYSQ) closed Tuesday at $14.687, down 18.75 cents.