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Affy Leverages Hyseq Settlement into Joint Array Venture, N-Mer

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For cash-strapped Hyseq, a cash settlement with Affymetrix in its four-year patent battle would have been a nice shot in the arm.

The company only has $16.5 million in cash and $39 million in total assets (as of Sept. 30), and that’s with generous $20 million infusions from guardian angel-chairman George Rathman.

Instead, Hyseq spun out of the Affymetrix litigation with a new venture in its weary arms, which it is required to fund using the settlement proceeds. Under this plan, the Sunnyvale, Calif., company is creating a spinoff, Callida Genomics, which will embark on a joint venture, N-Mer, with Affymetrix, to develop “universal arrays” for sequencing by hybridization.

The arrays will be synthesized on the GeneChip platform, and proprietary “Sequencing by Hybridization” (SBH) technology that Hyseq scientists have developed for high-speed sequencing. Thirty Hyseq scientists, including SBH inventor Rade Drmanac, will join Callida. Affymetrix will be the exclusive distributor of these chips and the systems to run them, and will also aquire the option to buy a majority interest in the venture.

This new venture is a resurrection of sorts for Hyseq’s long-moribund array program. The company had begun developing its HyChips in 1997, but had not yet produced a product and had relegated these chips to the back burner when financial difficulties forced the company to reevaluate its mission and focus on pharmaceutical development.

But for Affymetrix, the venture is a double boon. Instead of having to pay out cash in a settlement and lose the capital, the company gets to invest this capital in its own R&D — a joint venture that could yield a valuable next-generation microarray product.

These sequencing GeneChips will be designed to enable high-speed sequencing of genes that are too complex and time-consuming to do using gels or capillary electrophoresis, and may allow researchers to decipher gene networks or allow them to identify rare disease-related polymorphisms and mutations.

This product could provide a potential source of diversification for Affymetrix in the long-term, as whole-genome GeneChip revenues level off in future years.

But even if this venture does not take off, the company has signed on Hyseq Pharmaceuticals, the new drug discovery branch of Hyseq, as a biotech access customer for ordinary GeneChips.

— MMJ