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Executive Summary

AFFYMAX/ALZA ELECTROTRANSPORT AGREEMENT-IN-PRINCIPLE "provides that Affymax will optimize selected compounds for administration by Alza's electrotransport delivery systems," Palo Alto, Calif.- based Affymax said in a Dec. 11 prospectus for an initial public offering completed on Dec. 17. The two companies are in the process of negotiating a final agreement, Alza said. Any agreement will be subject to approval by outside members of the two firms' boards, the prospectus notes. The electrotransport agreement could be the first formal relationship between two companies that share a similar pedigree. Affymax founder, Chairman and CEO Alejandro Zaffaroni, PhD, also founded Alza in 1968 and still serves as co-chairman. Two other Affymax board members, Robert Glasner, MD, and Julian Stern are also on the Alza board. In addition, Affymax President and Chief Operating Officer John Diekman, PhD, serves on the board of Bio- Electro Systems, which was spun off from Alza to research electrotransport. Alza announced in November that it would reacquire BES ("The Pink Sheet" Dec. 2, T&G-9). The prospectus indicates that more deals with Alza are possible. "As a matter of policy, the company intends that any such agreements will be no less favorable to the company than those that could be obtained from unaffiliated parties," the prospectus says. Affymax raised over $ 90 mil. with the Dec. 17 offering of 4.6 mil. shares (including underwriters overallotment) at $ 20 per share. The company had $ 38 mil. in cash on hand, the prospectus says. The offering reflects an increase in size and price from the estimates in the prospectus of 3 mil. shares at $ 18.50 with projected net proceeds of $ 50 mil, which Affymax said would be enough to fund operations for 36 months. The deal was managed by Goldman Sachs and Alex. Brown. In addition to the agreement-in-principle with Alza, Affymax has two other corporate partnerships in place. Ciba-Geigy and Affymax struck a deal in July ("The Pink Sheet" July 29, T&G-5), and Affymax teamed up with Marion Merrell Dow in May ("The Pink Sheet" June 17, In Brief). Both deals involve Affymax' VLSIPS (Very Large-Scale Immobilized Polymer Synthesis) drug screening technology and the firm's RPD (recombinant peptide diversity) method for rapid production of different amino acid sequences for screening. The Ciba-Geigy deal is targeted at a selected immunomodulatory cytokine for autoimmune and inflammatory diseases, selected tyrosine kinases for cancer and a selected complement factor for inflammatory diseases and adult respiratory distress syndrome, according to the prospectus. As part of the deal, Ciba-Geigy purchased 634,518 shares (4.7% of the company post-offering) for $ 7.5 mil. and agreed to purchase $ 7.5 mil. worth of preferred shares of ATNV, Affymax' Dutch parent, over the three years of the deal. Ciba has an option to extend the deal for a fourth year "upon payment of additional fees" and can exchange the ATNV shares for rights to products resulting from the collaboration. The three-year deal with Marion Merrell Dow also involves $ 7.5 mil. in equity, for the same number of shares, and $ 7.5 mil. in research funding over the life of the agreement. The prospectus identifies specific targets of the MMD research: interleukin-1- type 1 and type 2 receptors for arthritis, autoimmune and inflammatory diseases, interleukin-2 receptors for transplant rejection and autoimmune diseases, and Major Histocompatibility Complex (MHC) Class II receptors for autoimmune diseases. Affymax is screening compounds for IL-1 and IL-2 receptors, and "is currently generating the reagents required to initiate the drug discovery process" for MHC receptors. The prospectus notes that MMD can expand the collaboration to three more targets with additional payments. Proprietary drug discovery targets for Affymax include tumor necrosis factor receptors for septic shock and inflammatory diseases, collagenase for arthritis and inflammatory diseases, stromelysin for arthritis and osteoporosis, matrix metalloprotease number 7 for cancer, thrombin receptor for coagulation and cardiovascular disease, and ELAM-1 for arthritis, adult respiratory syndrome, and post-ischemic damage. Research appears to be most advanced in the TNF area, where "the company has produced both types of TNF receptors and is using these receptors to screen for lead molecules."

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