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Biotech / Medical : AXYS Pharmaceuticals Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Muse who wrote (302)	7/2/1999 11:27:00 AM
From: bob zagorin	Respond to of 455

from an article in signal on biotech spinoffs. "...Axys Pharmaceuticals Inc. was forged from the merger of Sequana Therapeutics Inc. and Arris Pharmaceutical Corp. in November 1997. Once it integrated all the technologies under one roof, the new drug discovery company had created a comprehensive technology platform -- encompassing everything from gene identification forward to clinical trials. It was sitting on a wealth of potential product opportunities -- too many, in fact, to exploit by itself. So, Axys started spinning out businesses. It now has three: in combinatorial chemistry (the Advanced Technologies Division), in pharmacogenomics (PPGx Inc.) and in agricultural biotechnology (Xyris Corp.) The affiliated businesses are intended to leverage Axys' broad technology platform for near-term capital and value creation. Two of the spin-outs, PPGx and Xyris, are independently financed, as well, a move than reduces the parent company's risk at the same time that it maintains a majority ownership in each. "We wanted to create something for Axys that produces equity value for us at the end of the day," explained John Walker, Axys' chairman and CEO. The first spin-out was the Advanced Technologies Division, which Axys formed in January 1998, right after the Sequana/Arris merger was consummated. Axys hasn't sought venture capital for this division, which is also located in South San Francisco, but instead relies on collaborations with big pharmaceutical houses and other biotech companies to provide the funding. In fact, the division contributed 25 percent of Axys' total revenue in 1998. "The Division is an operating business. It's the for-profit part of the company," Walker explained. "The nature of the business is different enough to set it up under its own management structure and P & L [profit and loss statement]." Still, until the present, the division has been wholly owned by Axys. Only now is the parent company looking at a more formal subsidiary status for the division, Walker added. "Axys has the opportunity to raise capital directly for the Advanced Technologies Division or for Axys by selling a portion of Axys' stock holdings," he said. Next came Xyris, which was formed in May 1998 as a majority-owned subsidiary and funded by a $10 million infusion from Bay City Partners. Post-money, Xyris was valued at $33 million, Walker said. Axys holds a 60 percent stake in Xyris, which is a separate corporation with its own stock. Thus, employees have options in Xyris, not Axys. This is a great incentive: it allows the company to attract key personnel, including its president and board of directors as well as top scientists. "If we had kept it as a division, it would have been difficult to get independent capital. But when we set up a subsidiary, we were able to attract both capital and management to run the business." Less than a year later, in April 1999, the agricultural genomics firm took its first major step when it acquired privately held Global Agro Inc., a plant genetics company also based in San Diego. This all-stock transaction will create a new company with a new name -- Akkadix Corp. Axys spun out PPGx in February 1999 as a majority-owned subsidiary and a joint venture with contract research organization PPD Inc. PPD holds an 18 percent stake and is providing the initial funding for the joint venture, which is located in La Jolla, Calif. PPD also contributed two former subsidiaries, Intek Labs Inc. and Intek Labs Ltd., which have been absorbed into PPGx. This put PPGx's initial valuation at $62 million, Walker said. Axys' long-term goals for its spin-offs are very similar. In all cases, the parent company is interested in obtaining liquidity. "The main driver is to raise capital for drug discovery." For Xyris, now Akkadix, the aim is to either bring the company public or sell the business in the next four to five years, Walker said. The same time frame holds for PPGx: "We want a certain amount of money out of it in four to five years. PPD can buy stock directly from Axys to increase its ownership to a level equal with Axys'. Then, in three years PPD would have an opportunity to make a bid for PPGx." Going public is another option. As well, Walker said that he sees the Advanced Technologies Division as either an IPO or a sale in the future...."