What was supposed to be a simple late summer deal turned ugly for Incyte Pharmaceuticals Inc., as the company lost $269.1 million - 30 percent - of its market value last week after announcing plans to acquire Hexagen plc and incorporate it into a new business unit called Incyte Genetics that will be covered by its own tracking stock.

While INCY had its reasons for the acquisition and the formation of the new business unit, and while Hexagen and its shareholders entered enthusiastically into the deal, INCY shareholders voted with their feet.

Wall Street erased far more than the initial value of the new company - $61.2-$71.2 million based on the prior price of INCY shares and $50.4-$60.4 million based on Friday's close - from INCY's market cap. By week's end, sellers had driven the stock down $9.75 to $23.125.

Before the fall, INCY's market cap was about $907.4 million - by week's end it was $638.3 million. INCY has 27.6 million shares outstanding.

For Hexagen, the selloff reduced the paper value of the transaction by $10.8 million, from $41.2 million to $30.9 million.

The deal

Hexagen (Cambridge, U.K.) develops technology to identify single nucleotide polymorphisms (SNPs) to determine individual genetic variation underlying susceptibility to disease. Based on the deal, INCY (Palo Alto, Calif.) plans to build a new business in pharmacogenetics, using a similar database subscriptions and services model but with a longer-term profitability horizon.

The company's existing gene expression database business is to be called Incyte General, and will continue to be covered by the INCY stock. Incyte Genetics will be covered by its own tracking stock, which will be issued as a dividend to current INCY shareholders, although a future public offering of shares also is contemplated.

INCY will acquire Hexagen for $5 million in cash and 1 million shares of INCY common stock, and could issue an additional 100,000 shares of stock to cover Hexagen's outstanding stock options.

In addition, INCY plans to invest $20-$30 million in cash in Incyte Genetics, half of it by the end of the year.

INCY said it expects Incyte Genetics to garner about $200 million in the first two years, including the $20-$30 million, with the remainder generated from subscriptions and other product fees, partnerships and outside investment in Incyte Genetics equity.

INCY expects Incyte Genetics to start generating revenue in 1999 and be profitable within four years.