Pfizer Inc. and the University reached a 55-acre, $27 million agreement yesterday that will allow expansion of the pharmaceutical giant"s laboratories on North Campus and increase the amount of land Pfizer owns in Ann Arbor by 60 percent.

Money from the sale will benefit the University"s Life Sciences Initiative. It will be divided between the Undergraduate Science Center, the Biomedical Engineering Department and the Department of Molecular, Cellular and Developmental Biology.

Gilbert Omenn, the University"s executive vice president for medical affairs, said he expects the deal to bring biotech corporations into the area as the LSI program expands.

"It shows our commitment to building the Life Sciences Initiative and it shows that the mayor and the City Council are working together to keep Pfizer here and growing," Omenn said. "There will be good jobs associated with this decision."

The deal must still be approved by University Board of Regents, which scheduled a special meeting tomorrow morning, as well as by the city and the state. Because the land will now be privately owned, it will be subject to property taxes, estimated at $500,000 per year.

Acquisition of the land has been a priority of Pfizer since January, when talks between the company and the University began.

"Ann Arbor is one of the premiere drug discovery facilities for Pfizer," said Pfizer spokeswoman Betsy Raymond. "But without this land, Ann Arbor could not be considered for future development."

The deal connects Pfizer"s existing 90-acre site in Ann Arbor with 55 acres of unused land bordered by Plymouth, Green and Baxter roads. Raymond said her company did not have any immediate plans for construction on the new land because planning had not started before the deal was specified.

"In the meantime, this deal makes it possible to build on the existing site, which we could not have done before because of density restrictions," Raymond said.

Raymond said Pfizer wants the state to grant the company tax abatement privileges.

"The case we have presented to the University is compelling," she said. "This is a short-term investment that should produce long term year-in year-out benefits."

Raymond said Pfizer expects the revenues that will ultimately be generated for the University and for Ann Arbor based on long-term projections "are in the millions."

Pfizer has six major drug testing laboratories worldwide, including its Ann Arbor location. The company is best known for as the maker of Viagra, a drug for impotence.

University spokeswoman Julie Peterson said she expects the deal to be finalized sometime early next year.

University Chief Financial Officer Robert Kasdin said Pfizer"s commitment to Ann Arbor will benefit the city and the corporation, as well as the University.

"Pfizer"s decision to remain in Ann Arbor is necessary to the powerful momentum behind the U of M, moving it to the forefront of global research in this field," he said.

Although talks between Pfizer and the University have lasted more than nine months, Kasdin said both sides were eager to work together on this deal.

"All or our discussions have been constructive and collegial," he said.

The University"s relationship with Pfizer parent corporation Parke-Davis Inc. began in 1895, when the company"s research division began a chemistry fellowship for medical research.