By Brady Huggett

Affymax Inc. has come full circle.

Founded in 1988, it had gone public by the time GlaxoSmithKline engulfed it in 1995, and now has been spun out to focus on building a pipeline of its own.

Patricof & Co. Ventures Inc., of New York, is leading a syndicate of venture capital firms investing $51 million in Affymax, and holds a majority interest in the company. The Sprout Group, of Menlo Park, Calif.; MPM Asset Management, of San Francisco; and Apax, of London, are also involved, and GlaxoSmithKline retains 23 percent of Affymax.

The transaction is expected to close within the next month.

For Affymax, spinning out is something of a rebirth after a six-year incubation.

¿There are a couple of things when comparing old Affy to new Affy,¿ said Lori Rafield, general partner with Patricof & Co. ¿From 1989 to 1995, it was a technology-driven company. It had multiple corporate partnerships, all to support continuing to develop the technology platform. But when [Glaxo] bought it, I think it realized the technology was not fully formed. The screening was not to a point where it could screen targets and generate entities.

¿Between 1995 and 2001, the platform was fully enabled,¿ she continued. ¿[The technologies] can be used against multiple classes of targets to generate entities.¿

Affymax, of Palo Alto, Calif., was bought by Glaxo ¿ before it became Glaxo Wellcome plc and then GlaxoSmithKline plc, of London ¿ for more than $500 million. When Glaxo picked up Affymax, it also got its subsidiary, Affymetrix Inc., in which it still holds an equity stake. In 1997, Glaxo Wellcome and Affymax spun out Maxygen Inc., of Redwood City, Calif. (See BioWorld Today, Jan. 27, 1995.)

Maxygen raised $96 million in its 1999 initial public offering, selling 6 million shares at $16 per share. It finished 2001¿s first quarter with about $255 million in cash, cash equivalents and marketable securities, posted a pro forma net loss of $5.3 million for the quarter and took in $6.9 million in revenue. (See BioWorld Today, Dec. 20, 1999.)

Affymetrix raised $90 million in its initial public offering in 1996, selling 6 million shares at $15 per share. It had a cash position of about $372 million as of June 30 and generated $49.5 million in revenue in the second quarter. Excluding amortization of acquired intangible assets and deferred compensation, Affymetrix reported a net loss of $4.4 million for the quarter. (See BioWorld Today, June 7, 1996.)

With success stories such as those, pushing Affymax out of the nest seemed like a good idea.

¿Affymetrix and Maxygen were very successful for GSK,¿ Rafield said. ¿They thought [Affymax] would build more value as an independent drug discovery company rather than buried inside GSK. It will generate more value by spinning this thing out.¿

Affymax will be completely free of GlaxoSmithKline¿s influence. Although Glaxo retains internal use rights for Affymax¿s technology, it cannot develop compounds that compete directly with Affymax¿s. Glaxo¿s shares are non-voting, and the company will not have representation on the board or any hand in managing Affymax.

The corporate management team for Affymax is not yet in place. Rafield said there are searches under way for the CEO and chief financial officer, and both positions are expected to be filled in the next four months. Rafield will sit on Affymax¿s board, along with Kathy LaPorte, of the Sprout Group and Nick Galakatos, of MPM. There are two board seats open for outside industry experts.

Affymax has made its way in the biotechnology world by helping produce drugs. Through a combination of chemistries, molecular biology techniques, software and instrumentation technology, Affymax synthesizes, screens and optimizes potential new drug compounds. It will take that knowledge and technology and use it for its own pipeline.

Affymax and its 99 employees will focus on two families for drug development ¿ protein tyrosine phosphatases and single transmembrane receptors. From those families it will be able to attack a range of indications.

¿We are screening multiple members of the [single transmembrane receptor] family and we have multiple leads,¿ Rafield said. ¿We will partner certain leads, but not the whole family.¿ Rafield said the family of protein tyrosine phosphatases will provide ¿longer-term value¿ for Affymax.

Affymax now finds itself privately held again, looking to take a familiar trip to the publicly traded markets.

¿We¿ll do a financing in the next 18 to 24 months,¿ Rafield said. ¿We¿ll raise about $75 million and hopefully the next financing will be a public offering.¿

While the company is now in its development stage clinically, it doesn¿t come in unarmed. Rafield said Affymax has 300 patents and patent applications. It has dozens of high-throughput screens that are functional, too. With time, all this should bear fruit, she said.

¿With respect to compounds that are in the clinic, it is early, but in respect to the intellectual property, we are very far along,¿ she said. ¿I would say two to three years would be the time to think about [moving a compound into the clinic].¿

After being in the belly of the whale for six years, Affymax is back where it started ¿ an independent company, but one with years of experience.

¿Most of the time when you do an investment in a biotech company, you are trying to get the technology up and running,¿ Rafield said. ¿What is fully developed here is the scientific side of the organization. That is why we spent so much time on this.¿

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