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About Maxygen: I took a serious look after reading at:


Maxygen's work has wide scope
Here's why I like Maxygen, which was first suggested by a reader in December: Unlike most companies in the biotech sphere, this company doesn't target a single interesting market -- like osteoporosis, cancer or sexual dysfunction. Instead, it applies next-generation genetics-engineering techniques to solve problems in a wide range of multibillion-dollar markets, from the improvement of the enzyme that helps laundry detergent make your whites whiter to better farm-animal vaccines and enhanced soybean seeds.

The strength of this business plan is its diversity and potential for speed -- and there is no underestimating the latter. While genetically engineered proteins intended for human ingestion can wend through the federal regulatory maze for many costly years and still never emerge, zippy new molecules intended for bovines or bathwater are very often approved with a hand wave. If they work in the lab, they can move quickly to industry or the field and start making money. Better yet, Maxygen retains royalty rights to the compounds that it creates under contract from industrial titans like DuPont (DD, news, msgs) and Novo Nordisk (NVO, news, msgs), creating the potential for annuity-like streams of dollars that flow for decades.

Founder of string of biotech successes
Zaffaroni learned the lesson of focusing on biotechnology platforms -- or sets of tools -- rather than specific drugs midway through his career. His earliest success came in 1951 with Syntex -- the Mexican pharmaceutical manufacturer that developed the Pill for contraception. He went on to found the eponymous ALZA in 1968, as the pioneering developer of drug-delivery systems, such as skin patches and time-release capsules. Then came DNAX in 1980, which specialized in combining genetic engineering with immunobiology. Affymax came next, in 1988, to pioneer work in the new field of combinatorial chemistry. It was followed by Symyx in 1993, to focus on combinatorial materials; Affymetrix (AFFX, news, msgs) in 1993 to develop a tool called the GeneChip that revolutionized genomics research; and lastly, Maxygen in 1997 to hurry evolution with a set of DNA-shuffling techniques called "molecular breeding."

The scorecard for investors: DNAX was sold to Schering-Plough (SGP, news, msgs) in 1982 and Affymax went to Glaxo Wellcome (GLX, news, msgs) for $533 million in 1994. Of the currently independent firms, Affymetrix today fetches a market capitalization of $6 billion, Maxygen is worth $5.2 billion and Symyx is the baby of the family at $1.3 billion.

Gene-shuffling has wide application
But enough of the past. What makes Maxygen, in particular, a candidate for a really big market capitalization someday is that, in addition to generating immediate revenue by licensing its high-speed gene-shuffling technology to industrial or pharmaceutical concerns, it retains the potential for high-margin, product-development revenues of its own.

Maxygen already has more than 40 products in the pipeline, which is a lot. In case you're just catching up with investments in biotech, take note that these companies need just a couple of hits to become wildly successful. Amgen (AMGN, news, msgs), for instance, has grown to a $60 billion market cap largely on the strength of just two drugs: Epogen and Neupogen. Meanwhile, Immunex (IMNX, news, msgs) has a $31 billion market cap on the strength largely of three: Enbrel, Leukine and Novantrone.

So what's the big deal with gene shuffling? Think of evolution as if it were a game of poker in which players are dealt genes instead of cards. To develop a better human being or stalk of corn over the past few million years, Mother Nature keeps shuffling her deck of chromosomes, via the process of procreation, until she gets a winning combination -- a genetic royal flush. This takes a long, long time. Eons, in fact. Classical breeding techniques developed by Gregor Johann Mendel in the 19th century sped up the process a great deal, but principles and equipment developed in the past decade by first-generation genomics companies like PE Biosystems (PEB, news, msgs), Affymetrix and Gene Logic (GLGC, news, msgs) vastly accelerated the pace. Now, Maxygen's techniques take the process up by an order of magnitude -- allowing scientists to shuffle genes at an astonishing rate. What once took generations now takes weeks. In the past 25 years, the biotech industry has created fewer than 50 therapeutics for the treatment of disease. Maxygen's techniques provide a faster, more efficient way to create the next 500 products.

An industry with dramatic growth potential
The company is currently in a quiet period as it prepares to sell an additional 1.5 million shares to raise money for general corporate purposes, so its executives were not available for interviews. However, a biotech analyst, who also declined to be quoted by name due to the quiet period, said that applications for Maxygen in the chemical industry alone could potentially be totaled in the tens of billions of dollars. In an interview conducted in early February, he said: "Right now the genomics industry is in a time frame that's equivalent to when the Internet consisted of America Online and Prodigy, circa 1992. There's been a lot of wealth created since then in the Internet, and I think the value in names like Maxygen could ultimately be much more significant."

In summary, it appears that Maxygen can play a key role anywhere that DNA can encode something worth money -- from vaccines, anti-cancer drugs and new-age nutraceuticals to enzymes that turn cellulose into cheap fuel. Indeed, it's hard to imagine an industry where, in 10 years, you couldn't see the life sciences finding new and improved applications. One recent deal with mining giant Rio Tinto (RTP, news, msgs), for example, calls upon Maxygen to develop ways to reduce carbon-dioxide emissions from industrial processes.

Combine those ambitions with a gold-plated management team and board, cash and equivalents of $136 million, virtually no debt and a research-and-development effort that's a profit center rather than a drain, and you could potentially have one of the great success stories of the decade.

Gorilla, chimp, boa or fat cat...does not matter in this case. Success by this company means muchissima cashola for its investors.

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