By Mary Welch

Axys Pharmaceuticals Inc.'s subsidiary, Axys Advanced Technologies Inc. (AAT), signed a $10 million deal to provide a compound screening library for Daiichi Pharmaceutical Co. Ltd. John Walker, chairman and CEO of Axys, called the move "a continuation of a business we started about a year-and-a-half ago," as a way to fund the company's drug-discovery efforts.

AAT, located (like Axys) in South San Francisco, produces and markets diversity libraries for general screening and directed libraries focused on specific protein targets. It also offers "technology enablement" and follow-on medicinal chemistry services.

The new subsidiary had 1998 product revenues of $12 million, and expectations for this year are "north of $17 million," he said. The subsidiary contributed approximately 25 percent of Axys' total revenues last year.

"This is a cash-flow positive company," Walker said. "It is a viable business."

AAT is the third subsidiary spun-out by Axys, following Akkadix Corp. (formerly Xyris) in agricultural biotechnology, and PPGx Inc. in the area of pharmacogenomics. The initial valuation of these three entities exceeds $100 million, the company said. In fact, Axys itself is the result of South San Francisco-based Arris Pharmaceutical Corp.'s takeover of Sequana Therapeutics Inc., of La Jolla, Calif. (See BioWorld Today, Nov. 4, 1997, p. 1.)

"This company will be independently run, and even though Axys owns 100 percent of the company, it is our intent to make it more independent, either through corporate partnerships and strategic alliances or going to the public market," Walker said.

The deal with the Tokyo-based Daiichi is AAT's fourth partnership. Over the course of the three-year contract, ATT will provide Daiichi with a diverse compound screening library consisting of small molecule compounds created using Axys' combinatorial chemistry technologies. Daiichi also gets enabling technologies and the synthetic protocols for reproducing and expanding the library chemistries.

"The deal provides for payments in excess of $10 million to AAT for product delivery and technology transfer - real dollars," Walker said. "It's not a situation where AAT gets reimbursed for research or future milestones."

Daiichi's chemists will work alongside those at ATT to enable Daiichi's chemists to learn the combinatorial chemistry technologies so they can be used in Japan.

Axys's stock (NASDAQ:AXPH) closed Wednesday at $4.906, up $0.281.