By Frances Bishopp

On the heels of two other noteworthy genetic diagnostic deals reported this year, Incyte Pharmaceuticals Inc. and SmithKline Beecham plc. have thrown a collective hat in the ring with the formation of a new diagnostics company, diaDexus, which will focus on the burgeoning field of pharmacogenomics as well as on diagnostic kits for cancer and infectious diseases.

With a $25 million investment (Incyte - $10 million; SmithKline - $15 million), the two companies each will hold a 50 percent equity interest in the new venture, which will have access to SmithKline's genomics and bioinformatics capacities, including discoveries made by SmithKline using the SmithKline/Human Genome Sciences Inc. database, and to Incyte's leading-edge databases.

The new company, SmithKline said, will be the only entity to have access to two of the world's largest libraries of genetic information as well as to other technologies and intellectual property rights contributed by each parent company.

"For SmithKline Beecham, this new arrangement represents an opportunity to realize the full potential of the work we have been doing in genomics in its application to diagnostics," said Richard Koenig, director of communications programs at SmithKline.

In May 1997, in a move that put Roche Holding Ltd., of Basel, Switzerland, at the forefront of the world's diagnostics market, the pharmaceutical giant agreed to pay approximately $11 million to acquire Corange Ltd., the parent company of Germany's Boehringer Mannheim G.m.b.H., one of the world's largest diagnostics companies.

Several months later, Paris-based Genset S.A. closed a pharmacogenomics deal worth up to $42.5 million with Abbott Laboratories, of Abbott Park, Ill., to develop test kits based on genes that play key roles in the way patients respond to various drugs.

Analyst Mary Anne Gray, of Dillon, Read & Co. Inc., of New York, described the SmithKline/Incyte deal as an "excellent transaction," in that pharmacogenomics promises to be a "huge" area going forward. "The deal takes advantage of our growing understanding of how the genomics of complex disease will prove to be extremely relevant not only in just diagnosing a disease condition, but in the choosing and monitoring of therapy. Diagnostics is going to play a growing role in medical care."

Incyte will provide diaDexus with non-exclusive access to its human and microbial databases (LifeSeq gene sequence, LifeSeq FL database for full-length genes, LifeSeq Atlas mapping database, LifeSeq GeneAlbum and PathoSeq microbial database) for diagnostic applications, plus bioinformatics capabilities and its GeneJet array technology (ink-jet printer-based microarrays), Randy Scott, president and chief scientific officer with Incyte, told BioWorld Today.

Also, Incyte, of Palo Alto, Calif., will provide non-exclusive access to Incyte's technology platforms for diagnostic purposes.

In 1993, SmithKline, of London, spearheaded the move into genomics with a $125 million deal with Human Genome Sciences, of Rockville, Md., which gave SmithKline access to Human Genome Science's database of human gene sequences.

DiaDexus has exclusive rights to develop diagnostic tests based on novel molecular targets and genetic alterations identified as part of SmithKline's drug discovery efforts and from SmithKline's collaboration with Human Genome Sciences.

SmithKline also will exclusively license to diaDexus, located in Santa Clara, Calif., a number of diagnostic tests in late-stage validation. Human Genome Sciences will receive royalties from sales of products developed using Human Genome Sciences' technology.

The formation of the new company was arranged in two steps, said William Haseltine, chairman and CEO of Human Genome Sciences. The first step, which occurred a month ago, involved SmithKline and Human Genome Sciences realigning the 1993 agreement on development of diagnostics based on Human Genome Sciences' identification of genes. The amended deal gave Human Genome Sciences rights to market diagnostics that support drugs it is developing. The new agreement also simplified procedures for SmithKline to outlicense diagnostic products and grants Human Genome Sciences royalties on sales.

Prior to the amended agreement, SmithKline did not have the right to transfer anything but a developed product, Haseltine said. The new agreement allows SmithKline to transfer individual research opportunities.

"We changed our agreement to make it easier for SmithKline to select genes from our database and sublicense them to a third party," Haseltine said. "The second thing is we assured ourselves that if that happened, we would have the same royalty rate as if SmithKline developed the product itself."

With that agreement in hand, Haseltine continued, SmithKline was able to become a major participant in the joint venture, diaDexus, but its major contribution would come from Human Genome Sciences' technology.

The Human Genome Sciences technology will take a circuitous route from Human Genome Sciences to SmithKline to diaDexus and finally to SmithKline's clinical laboratories, Haseltine said.

DiaDexus' initial product range will focus on tests for disease detection, rather than risk predisposition profiling. New tests for improved diagnosis, staging and patient stratification in infectious disease and oncology will be accorded particular emphasis, together with the creation of pharmacogenomic tests to optimize treatment selections based on human genetic differences.

Eventually, diaDexus may develop its own capacity to manufacture kits for sale to clinical laboratories and is currently talking to (undisclosed) collaborators on the subject.

DiaDexus scientists will work off the Incyte databasesdirectly and SmithKline scientists will have access to Human Genome Sciences' database, Scott said. Any diagnostics discovered under any diagnostic rights to the Human Genome Sciences database, which are controlled by SmithKline, will be then contributed on a product-by-product basis to diaDexus. "This way there is no crossover of the two databases," Scott said.

Incyte's stock (NASDAQ:INCY) closed Wednesday at $65.25, up $3.25. Human Genome Sciences' stock (NASDAQ:HGSI) closed Wednesday at $38, up $.6875. *