Lexicon Genetics Inc., which identified the function of 500 genes in Genentech Inc.'s discovery pipeline during a three-year collaboration, expanded the deal with the biotech giant for an additional $25 million.

Since signing the initial agreement in December 2002, the companies have participated in "a highly productive alliance," during which Lexicon used its gene knockout technology to determine the function of genes in Genentech's secreted protein discovery initiative (SPDI), said Arthur Sands, president and CEO of Lexicon, who was in New York Thursday to present the deal and other Lexicon news at an analyst and investor luncheon.

During the last three years, "we demonstrated that this portfolio of genes has many interesting functions," he added, and the expansion will allow the companies to "perform advanced research on a select group from those genes, and then choose targets for drug development."

The agreement calls for Genentech to pay Lexicon up to $25 million in up-front fees, milestone payments and research funding. Beyond that, Lexicon has the opportunity to develop and commercialize up to six targets resulting from the collaboration, and already selected its first two: knockout proteins LG842 and LG843, which were found to be associated with triglyceride regulation.

"When these proteins are knocked out, they result in very low triglyceride levels," Sands said, "which gives us the opportunity to create antibodies" that can be used for treating conditions associated with cardiovascular disease.

For the six Lexicon products, Genentech holds a co-development option that can be exercised either prior to the investigational new drug application or after Phase II studies. If Genentech decides not to opt in, the South San Francisco-based company agrees to pay Lexicon regulatory milestones, plus royalties on any product sales. Lexicon also stands to receive milestones and royalties on any products from the collaboration that Genentech pursues for commercialization.

Shares of Lexicon (NASDAQ:LEXG) rose 21 cents on Thursday, to close at $3.99. Genentech's stock (NYSE:DNA) gained $2, to close at $97.62.

During its first three-year agreement with Genentech, Lexicon received $35 million and "hit all our performance milestones ahead of schedule," Sands told BioWorld Today. "We also saw some very exciting gene function discoveries."

When the companies first formed the alliance, it marked Lexicon's most significant deal at the time, though it was soon followed by a potential $450 million deal with New York-based Bristol-Myers Squibb Co., including $36 million in up-front fees and $30 million in research funding, for a neuroscience program. Lexicon also struck gold earlier this year when it signed a potential $73 million deal with NV Organon, of Oss, the Netherlands, to look at 300 protein targets and develop drug candidates for inflammatory diseases. That agreement is structured as a 50/50 profit sharing deal. (See BioWorld Today, Dec. 19, 2003, and May 18, 2005.)

The last few years have been very active for Lexicon, Sands said, due to "gene knockout technology becoming more widely recognized as the key way to harvest the value of the human genome."

And large deals with companies like Genentech "really signal the next step for Lexicon, as we enter drug development," he added.

The Woodlands, Texas-based company's pipeline consists of more than 70 identified drug targets, seven lead small-molecule programs and a preclinical candidate aimed at enhancing cognition, LG617, which is preparing to move into the clinic.

Lexicon reported a net loss of $14.1 million, or 22 cents per share, for the third quarter of 2005. As of Sept. 30, the company had cash and investments totaling $90.2 million.