By Randall Osborne

Backed by a $10 million investment from a merchant bank, Axys Pharmaceuticals Inc.formed a majority-owned company focused on agricultural biotechnology.

Jerry Caulder, former chairman, president and CEO of San Diego-based Mycogen Inc.,was named founding chairman and CEO of the new firm. He is the firm's only employee sofar.

"This is not a start-up company," Caulder told BioWorld Today. "It's a companythat's just getting started."

Initial capital of $10 million is coming from Bay City Capital, a San Francisco-basedmerchant bank and advisory partnership, in a two-tranche funding.

In addition to Axys' majority ownship, management of the new company will have anequity stake.

John Walker, chairman and CEO of South San Francisco-based Axys, said the newcompany will move ahead with an integrated set of technologies in genomics,combinatorial chemistry and small-molecule discovery.

The $10 million "is sufficient to allow this entity to become self-sustaining," Walker said,adding that the new company's "post-money valuation is in the mid-30s range."

Axys was formed last year when Arris Pharmaceutical Corp., of South San Francisco,took over La Jolla, Calif.-based Sequana Therapeutics Inc. (See BioWorld Today,Nov. 4, 1997, p. 1.)

"We had always seen the opportunity to leverage the technology and capitalize on thebioinformatics and genomics assets we acquired from Sequana," Walker said.

Caulder left Mycogen, an agricultural biotechnology company, a year ago. In April, facinga quarterly loss and rumors of a takeover, Mycogen's board said it was consideringoptions. (See BioWorld Today, April 15, 1998, p. 1.)

"We knew small companies like Mycogen would be threatened, because our tool kit wasso thin [that it could not keep pace with bigger firms]," Caulder said. "We essentially soldthe company to Dow [Chemical Co., of Midland, Mich.], so that we had deeper pocketsto do that. But at the Mycogen level, you had to run very hard just to stay in the sameplace."

Isolating genes and determining their functions was important, he said.

"Companies like Axys already were doing that, and we knew we were going to bebehind," Caulder said. "You've got to have a lot of chips on your side of the table."

Axys had them, and that's how the company "lured me off the golf course," he said.

The new company will be based in San Diego. "[Axys'] big genomics project is in SanDiego, from when they acquired Sequana, so a lot of the technology transfer is going to belocal," Caulder said.

Walker acknowledged more players are entering the agricultural biotechnology field, butsaid the sector will not support as many companies as the pharmaceutical side of theindustry.

"And it's going to be much harder for those with a single tool to make sense out of themarket," he said. "We see ourselves in an integrator role here."

The formation of the new company was disclosed Thursday. Axys' stock(NASDAQ:AXPH) ended the day at $7.687, up $0.062. *