ActivX Biosciences, Showing Life After Takeover, Keeps Innovative Ties in San Diego

3/4/10Follow @xconomy

Cover business long enough, and some storylines becomes routine. Startup creates something valuable, gets acquired. Valuable thing gets plucked away by big company, cost cuts ensue, jobs are lost, founders bolt, remaining employees are never to be heard from again.

But ActivX Biosciences isn’t following that script. This San Diego-based company was a highflier during the genomics bubble of 2000, with some hot technology for analyzing proteins from The Scripps Research Institute. Then it ran out of cash in 2004, by which time its VCs had lost interest in early-stage technology platforms. So ActivX found a buyer who wanted to use the technology to build up its drug development pipeline—Japan-based Kyorin Pharmaceutical. The VCs had little to celebrate. They pumped $25.5 million into the company during its first two years, then ActivX was sold to Kyorin for $21 million in December 2004.

Then came the unusual part. ActivX president John Kozarich, an accomplished scientist who previously worked at the University of Maryland, Yale University, and Merck, didn’t just wash his hands and start over. He had a few ideas to make it work inside a bigger company. Kozarich wanted ActivX to retain its name and identity, not just become Kyorin U.S. He wanted ActivX to remain a U.S. company with a board of directors, and to keep its valuable network of contacts in the San Diego scientific community—even if it only had a single Japanese shareholder. If ActivX could continue to sell its technology to enhance drug discovery for other companies—Pfizer being one—then the revenue could help enhance the technology, and therefore, help strengthen Kyorin’s drug discovery engine.

“I said, if you shoot all this down you won’t fully leverage the money you’re paying for the company,” Kozarich says. “It took a while because it was different, but they went along.”

The result is that a decade after ActivX was founded, Kozarich is still there, leading a team of 50 people. The company still provides its technology to customers like Pfizer, and it still has contacts with a stellar scientific advisory board at Scripps—Ben Cravatt, Paul Schimmel, Hugh Rosen, and Dale Boger. Last month, ActivX demonstrated how it still has some autonomy, when it announced it had licensed technology for identifying the activity of proteins to Thermo Fisher Scientific (NYSE: TMO), the Waltham, MA-based giant in the world of lab supplies.

John Kozarich

John Kozarich

So what does ActivX do now? The basic idea as I understand it is to help scientists do a better job of profiling all sorts of different enzymes like kinases and proteases. Many researchers now try to study enzyme activity using genetically engineered enzymes in kits from Carlsbad, CA-based Life Technologies’ Invitrogen unit. These kits can be good at isolating individual enzymes, although they create a somewhat artificial environment that doesn’t account for the complex ways proteins behave in concert with other proteins in the body, Kozarich says. ActivX seeks to differentiate itself with probes that can screen for hundreds of different enzymes with subtle differences within the same family, do it in samples from any tissue in the body, in multiple species, and in real-time, Kozarich says.

That’s thought to be valuable, because while every cell in the body has the same genetic code within it, not all of those genes are expressed at the same time to produce enzymes or other proteins. Researchers often want to know which enzymes are being expressed and are truly active in a certain tissue. That matters if you are trying to develop a drug to block or somehow alter the activity of a certain enzyme and others like it, Kozarich says.

“We can get a much more refined readout of how an enzyme behaves in its natural physiologic condition,” Kozarich says.

It’s hard to say how much this enzyme profiling has paid off for Kyorin, or other ActivX customers. ActivX has confidentiality agreements with quite a few of them, and doesn’t know exactly what they learn from the tests. He can’t point to a blockbuster like Novartis’ imatinib (Gleevec) and say it only made it because of the insights of the ActivX test.

But Kozarich noted that things went well enough in 2009 to pay ActivX shareholders a dividend. Pfizer has remained a customer for almost seven years. The Thermo deal allows that company’s sales force to market the ActivX tests, while sending back a royalty stream to ActivX. The enzyme profiling is being used throughout Kyorin’s pipeline. And Kozarich sounds like he’s still having fun.

“I still have all my key employees,” Kozarich says. “People feel like they haven’t joined a monolithic Japanese company. We’re still a biotech company, but this gives us the financial stability we wouldn’t have if we were private.”

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