By Mary Welch

Hyseq Inc. has entered into a collaboration with Kirin Brewery Co Ltd., that allows the Sunnyvale, Calif., company to retain 100 percent of all North American profits and 50 percent of European profits from the sales of any resulting pharmaceutical products. Kirin has equivalent marketing rights in Asia and Oceania.

Although Hyseq will receive $3 million for the initial phase of the collaboration, as well as undisclosed milestones, Hyseq executives believe the value to the company will exceed its recent $49 million deal with Chiron Corp., of Emeryville, Calif.

"We don't want to put a cap on the upside," said Chris Wolf, executive vice president and chief financial officer. "But we believe that the revenues will far exceed the Chiron deal, which was based on fees and royalties. It was important to us to retain 100 percent of the U.S. rights."

Chiron and Hyseq entered into a three-year alliance to develop therapeutics, diagnostic molecules and vaccines related to an undisclosed disease area. (See BioWorld Today, June 23, 1997, p. 1.)

Under the agreement with Tokyo-based Kirin, Hyseq will use its Gene Discovery platform to target novel genes involved in cell growth regulation from specific cell lines provided by Kirin. The two companies will co-develop and co-market any pharmaceutical products. The two-year collaboration is exclusive to the discovery of genes from the proprietary Kirin cell lines.

Collaboration Narrowly Focused

"We will be looking at some very narrow disease indications, but they are not being disclosed," said Lewis Gruber, Hyseq's president and CEO. "That was another benefit of the deal — we don't have to give away a lot in order to get the benefits. This collaboration is very focused."

Hyseq's array systems move beyond traditional gel sequencing by taking advantage of DNA's ability to hybridize with a complementary sequence. The company creates arrays on which a sample of unknown sequence is exposed to short DNA sequences of known content so that the specific patterns of positive identification are reassembled to determine the sequence of the unknown sample.

The Gene Discovery Module routinely screens more than 1 million samples per month, which Gruber says is substantially more than the nearest competitor. The system has the ability to identify rarely expressed genes and, as of April, it has enabled the filing of patent applications covering 63,500 new gene discoveries.

Of particular interest to Hyseq are the terms of the deal and the ensuing revenues. "Genomics companies have to start giving up less of their rights," said Gruber. "What we're doing is very much like the recent Myriad deal."

Myriad Genetics, of Salt Lake City, signed a five-year collaboration with Schering AG, of Berlin, worth up to $51 million, with $20 million upfront and an option to become an equal partner in the sale of any new drugs developed with ProNet, Myriad's protein interaction technology. (See BioWorld Today, Oct. 7, 1998, p. 1.)

"Genomics companies cannot succeed with milestone and royalty payments," said Gruber. "They must benefit from the rights from the product, and we got 100 percent of the U.S. rights in this deal. It's a product-driven strategy and you'll see more companies like ourselves and Myriad looking at downstream rights. Royalties are nice — or can be nice — but they're not the sort of payoff people go into the genomics field to get."

Hyseq's stock (NASDAQ:HYSQ) closed Wednesday at $5, up $0.125. *

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