By Debbie Strickland

Incyte Pharmaceuticals Inc. will soon offer its customers and partners gene expression microarrays, through chip technology acquired in the purchase of Synteni Inc., a three-year-old privately held Fremont, Calif., firm.

"The synergies between the two companies worked out so well for an acquisition structure," said Incyte spokeswoman Dayna Wheeler, citing flexibility as a major attraction. "It's very easy to operate as one unit, which will allow us to put every one of our genes on their chips."

Incyte will issue approximately 2.2 million shares of common stock — worth $88 million at Monday's closing price of $40 per share — in exchange for all of Synteni's outstanding shares. Expected to close in January, the transaction is designed as a tax-free reorganization and will be accounted for as a pooling of interests.

"It's an interesting acquisition; consolidation is a trend that I see continuing," said analyst Mary Ann Gray, of SBC Warburg Dillon Read Inc., in New York. "A gene is only a starting point."

The acquisition is by far the largest to date for Incyte, which has swallowed up two other firms in its eight-year history, both in 1996: Combion Inc., of Pasadena, Calif., for $3 million in stock; and Genome Systems Inc., of St. Louis, for about $7.7 million in stock.

Synteni To Continue Fremont Operations

Although it will become an Incyte business unit, Synteni will maintain its facilities and operations in Fremont and will serve as Incyte's primary microarray manufacturing site. Dari Shalon will continue as president of Synteni, reporting to Roy Whitfield, Incyte's CEO.

The unit will employ more than 100 persons, including manufacturing workers, to provide microarray services, with an initial push to build a set of human DNA microarrays containing Incyte genes.

"Synteni's technology," said Whitfield in a prepared statement, "will enable us to offer our customers prefabricated microarrays containing panels of genes selected from all of our various database modules in a commercially available format."

Synteni's centerpiece product is the Gene Expression Microarray, or GEM, which consists of up to 10,000 genes arrayed on a glass surface. GEMs are capable of analyzing thousands of genes in a single experiment by probing with fluorescently tagged DNA or RNA from a biological sample.

Shalon founded Synteni in 1994, and won venture capital support from the Palo Alto, Calif.-based Kleiner, Perkins, Caulfield & Byers.

Synteni has more than 20 undisclosed customers, some of whom are Incyte database collaborators. The unit also will support expansion of Incyte's Genejet piezoelectric technology, acquired in the Combion takeover. Genejet is a method of spraying gene fragments into microarrays on solid surfaces for direct drug screening or analysis of gene expression patterns in specific tissues.

The deal is not Incyte's first foray into the chip field. The company has a joint venture agreement with Santa Clara, Calif.-based Affymetrix to develop databases comparing gene expression patterns in healthy and diseased cells.

Using genes selected from Incyte's database, Affymetrix will make what will be called LifeChips with arrays of the known DNA sequences. Each chip, about 1.2 cm square, will contain expressed sequences, which are messenger RNA, representing as many as 1,000 genes.

Incyte had cash, cash equivalents and marketable securities totaling $116 million as of Sept. 30. The company reported a net income of $4 million over the first nine months of 1997, with the bulk of revenues deriving from subscription and collaboration agreements for Incyte's various databases. *

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