BioWorld International Correspondent

Santhera Pharmaceuticals AG divested its drug discovery unit via a management buyout in order to focus on its clinical and preclinical development pipeline.

The move revives the Graffinity name - it was one of the participants, along with MyoContract, in the 2004 merger that led to the formation of Liestal, Switzerland-based Santhera.

It also re-establishes within an independent company the Graffinity platform for affinity screening between small molecules and their ligands.

The new entity, formally known as Graffinity Pharmaceuticals GmbH, will employ 15 people and will be located in Heidelberg, Germany. Terms of the buyout were not disclosed.

"I think it's fair to say there's not immediate cash involved, but there is long-term interest in the benefit from what we are keeping in Graffinity," Santhera CEO Klaus Schollmeier told BioWorld International. It doesn't own an equity stake anymore, but it kept "a financial interest" in Graffinity, he said.

That will allow Graffinity's management, led by Kristina Schmidt, full freedom to operate, he said, while Santhera potentially will benefit from commercial milestones and would receive funds from any subsequent sale it may undergo.

The timing of the transaction was influenced by the progress of Santhera's clinical pipeline. Its lead compound, SNT-MC17 (idebenone), moved into a pivotal Phase III trial in Freidreich's ataxia in Europe toward the close of 2005 and is expected to be launched during late 2008 or in 2009.

"Santhera today is a product company," Schollmeier said. "The question was: Is the Graffinity technology a self-standing business?"

Its management demonstrated it was during 2005, he said, as it broke even for that period. Its customers included large pharmaceutical and biotechnology firms, such as Amgen Inc., of Thousand Oaks, Calif.; Genentech Inc., of South San Francisco; Serono SA, of Geneva; Pfizer Inc., of New York; Eli Lilly and Co., of Indianapolis; and Novartis AG, of Basel, Switzerland.

Graffinity's RAISE (Rapid Affinity Instructed Structural Evolution) platform comprises two libraries, one containing 10,000 small-molecule fragments and another comprising more than 90,000 lead-like structures, both of which are immobilized on microarray chips.

Binding events with ligands can be detected with a high degree of sensitivity through surface plasmon resonance spectroscopy.

The unit is at present capable of performing screens against "dozens of targets" every year, Schollmeier said, whereas Santhera's internal needs amount to only a couple of screens.

Graffinity has retained access to the technology and will continue to conduct R&D, Schollmeier said, but it decided the potential upside attached to the business was insufficient to merit the level of management attention it required.

The company has been established on a firm financial footing and will be self-sustaining indefinitely, Schollmeier said, adding that "they don't need to raise cash."

Santhera also had considered an outright sale of the business, he said, but a buyout at this stage offered an opportunity to build the company over the next year, after which it would be in a better position to undergo "a more value-creating" move.