By Frances Bishopp

Gene-array company Hyseq Inc. raised $42 million in an initial public offering (IPO) of 3 million shares of its common stock at $14 per share.

The company registered for the IPO in June. The offering was priced at the high end of the projected range of $12 to $14 per share and demand boosted the number of shares sold by 250,000.

Hyseq's stock (NASDAQ:HYSQ) debuted Friday at $14.75 and ended the day up $0.125 to $14.875.

Lehman Brothers Inc., Smith Barney Inc., and Fahnestock & Co. Inc., all of New York, were granted an option to purchase up to 450,000 addition shares to cover over-allotments.

Hyseq, based in Sunnyvale, Calif., applies its DNA array technology of its integrated HyX genomics platform (the HyX Platform) to develop gene-based therapeutic product candidates and diagnostic products and tests.

The HyX Platform uses the company's sequencing by hybridization (SBH) technology as its foundation. Hyseq believes SBH is less expensive and faster than traditional sequencing, which uses restriction enzymes and gel electrophoresis.

The automated technology uses short, synthesized stretches of radioactively tagged DNA as probes, which attach through hybridization to unknown complementary gene sequences. The hybrids, made of the probes and unknown DNA strands, are read and analyzed by computer to reveal the newly discovered sequences.

The HyX Platform's Gene Discovery Module analyzes human DNA samples at a rate of approximately 400,000 partial sequences per month, representing approximately 50 percent of a module's current capacity.

Hyseq uses the Gene Discovery Module internally to identify gene-based therapeutic candidates in the central nervous system, cardiovascular and infectious disease areas and therapeutic product candidates that impact cell receptors.

Hyseq's HyGnostics Module is designed to screen or sequence small to medium numbers of DNA samples (typically 10 to 1,000 samples per batch) for diagnostic applications, including DNA testing of genetic and infectious disease and cancer.

Hyseq's HyChip Module screens or sequences DNA samples in a single reaction with a capacity ranging in size from the detection of single base mutations to the sequencing of entire viral genomes.

The company presently is using the HyChip Module internally for research applications.

IPO Includes Chiron, Perkin-Elmer Deals

Tied to the IPO is a separate agreement, in which Chiron Corp., of Emeryville, Calif., and Perkin-Elmer Corp., of Norwalk, Conn., will purchase shares of common stock directly from the company. Chiron is investing $2.5 million and Perkin-Elmer $5 million.

Hyseq has existing collaborating agreements with both companies, in addition to agreements with SmithKline Beecham plc, of London, and Quest Diagnostics Inc., of Teterboro, N.J.

The Perkin-Elmer collaboration focuses on combining Hyseq's DNA HyChip technology and Perkin-Elmer's DNA analysis technology and is aimed at developing a "universal" chip that can assay any genetic target through the use of specially designed reagents and software.

The Chiron collaboration focuses on development of therapeutics, diagnostic molecules and vaccines related to a specified disease area.

To protect its technology, in March 1997, Hyseq filed a patent infringement lawsuit in the Federal District Court for the Northern District of California against Affymetrix Inc., of Santa Clara, Calif., which alleges that Affymetrix uses Hyseq's version of SBH.

Affymetrix, which researches and developed technologies for DNA analysis, denies the allegations.

After the IPO, Hyseq has approximately 12.1 million common shares outstanding.

Hyseq, which currently has no product on the market, reported a net loss of $4.8 million in 1996. As of March 31, 1997, the company had $4.7 million in cash. *