Axys Pharmaceuticals Announces Second Quarter Financial Results; Company Announces Relocation of Oncology Genomics to South San Francisco.

SOUTH SAN FRANCISCO, Calif.--(BW HealthWire)--July 29, 1999--

Company to Reduce Spending Rate by Approximately $17 Million

Dollars Per Year

Axys Pharmaceuticals, Inc. (Nasdaq:AXPH) today announced the consolidated results of operations for the second quarter ended June 30, 1999.

The company reported that total revenues for the second quarter were $8.3 million, compared with $9.1 million for the same period in 1998. Total revenues for the six month period ended June 30, 1999 were $20.1 million, compared with $17.5 million, a 15% increase over the same period in 1998. Operating expenses (including cost of sales) for the quarter ended June 30, 1999 were $22.2 million, compared with $17.6 million in the same period in 1998. Year to date, the operating expenses (including cost of sales) were $41.9 million, compared with $36.5 million for the same period in 1998 (not including 1998's write off of $124.9 million for acquired in process research and development).

The net loss for the second quarter ended June 30, 1999 was $13.2 million, or $0.44 per share, compared to a net loss of $8.2 million, or $0.27 per share for the same period in 1998. Year to date, the net loss was $21.0 million, or $0.69 per share, compared to $18.3 million, or $0.62 per share in 1998 (not including 1998's write off for acquired in process research and development). Cash, marketable investments, and receivables totaled $56.5 million as of June 30, 1999.

"Expenses for our core drug discovery and development efforts for the first six months were essentially even with the first six months of 1998. The increase in total operating expenses for the quarter and year to date are attributable to the costs of our independently funded affiliated businesses, Akkadix and PPGx which are consolidated for financial reporting purposes," commented John Walker, chairman and chief executive officer of Axys. "The revenue increase for the first six months is largely attributable to the $6.7 million in revenue from Axys Advanced Technologies, our combinatorial chemistry subsidiary," continued Walker.

The company also announced that it will relocate its oncology genomics operations from San Diego to its South San Francisco headquarters. The company's oncology genomics efforts currently involve the application of functional genomics technologies, including gene expression arrays, bioinformatics and whole animal genetic knockouts, to target identification and target validation. Axys' application of these technologies is focused on the discovery and development of small molecule therapeutics. The company plans to relocate a number of the researchers involved in these efforts from San Diego to continue their work as part of the company's fully integrated gene to drug program in oncology.

The company also announced that it is in discussions with interested parties regarding the disposition of its positional cloning and related technology programs that will remain in San Diego. Axys anticipates completing these discussions within the next 60 days in order to finalize the terms for transferring these programs to others; Axys will then close any remaining San Diego operations by the end of this calendar year.

As a result of these actions, the company believes that it will save approximately $17 million per year in operating costs beginning next year, with the goal of reducing the annualized cash burn of the company to the low $20 million range. The company anticipates it will incur a one time charge of approximately $6.0 million during the third quarter of 1999 for costs associated with the relocation of its oncology genomics effort and the transfer or winding up of its positional cloning and related efforts.

"The genomics technologies we obtained through the acquisition of Sequana Therapeutics have provided us with the capabilities that led to the establishment of Akkadix, our agricultural biotechnology company, and PPGx, our pharmacogenomics joint venture with PPD, Inc. and have given our oncology efforts a strong position in the identification of novel targets and a better understanding of the role that these and other targets play in various cancers," stated Walker.

"Our broader efforts in positional cloning, however, are not core to our oncology portfolio and have represented a growing area of unfunded expenditure for the company. These decisions are expected to significantly reduce our cash consumption in future years while causing an acceleration of our efforts into discovery and development of new therapeutics for the treatment of cancer."

"Our decision to consolidate our functional genomics resources at our South San Francisco campus, alongside our substantial capabilities in molecular and cellular biology, nematode biology, high throughput screening, medicinal and combinatorial chemistry, preclinical pharmacology and clinical development, is intended to ensure coordination of our oncology drug discovery efforts from target identification through the handoff to our clinical development group," stated Michael C. Venuti, Ph.D., senior vice president of research and preclinical development and chief technical officer at Axys Pharmaceuticals.

"As an example, we have made excellent progress in our gene identification programs in both hypoxia and angiogenesis. We recently selected five new targets for advancement to our high throughput screening. These targets will be screened against our combinatorial chemistry libraries which will approximate 450,000 compounds by year end. Upon the successful completion of our screening program, we will apply our medicinal chemistry expertise to the refinement of the resulting leads for pharmacokinetic and efficacy optimization, accelerating them into clinical development and building on our proprietary product pipeline in oncology."

Daniel Petree, President and COO, who is located at the company's San Diego facility, will have the primary responsibility for managing both the relocation of the oncology programs as well as the discussions with outside parties on the disposition of the remaining genomic assets. With the completion of those assignments, anticipated to occur by year-end, Mr. Petree has announced that he will leave the company to pursue other interests.

"Dan has been a great contributor to Axys over the last six years," commented John Walker. "During that time his responsibilities have increased within the organization as he moved from finance and business development to the general management role he has assumed over the last two years. I fully understand his desire to stay in San Diego and to pursue opportunities where his experience and skills will lead to even broader management responsibilities."

The company also highlighted significant events since the start of the year: -0-

--   announcement of Daniel Hoth, M.D., former head of the clinical
     investigations branch of the National Cancer Institute, as senior
     vice president of development and chief medical officer of Axys
     Pharmaceuticals
--   completion of phase Ia and Ib and the initiation of phase II
     studies on APC 2059 as a treatment for psoriasis
--   completion of phase Ia and Ib and the initiation of phase Ic
     studies on a subcutaneous formulation of APC 2059 for the
     treatment of ulcerative colitis
--   formation of Axys Advanced Technologies, Inc., a wholly owned
     subsidiary, along with the signing of contracts to provide
     combinatorial chemistry libraries to Rhone-Poulenc Rorer,
     Daiichi, Protein Design Labs and Novalon Pharmaceutical
     Corporation
--   establishment of PPGx, Inc., a majority owned subsidiary as a
     joint venture with PPD, Inc. The focus of PPGx is the offering of
     pharmacogenomics products and services to the clinical
     development community.
---  announcement by Akkadix, Inc., Axys' majority-owned agricultural
     biotechnology subsidiary, of its acquisition of Global Agro to
     forward integrate into crop development

Axys Pharmaceuticals is a drug discovery and development company with a proprietary focus in oncology. Axys is building shareholder value through (1) a broad and diversified pipeline of research and development programs partnered with world-class pharmaceutical companies; (2) expansion of a non-partnered research and development franchise in oncology; and (3) the spin out of affiliated businesses that leverage the company's technologies in order to provide capital for Axys' drug discovery and development programs.

Axys' technology-leveraging businesses are: Axys Advanced Technologies, Inc., a wholly owned combinatorial chemistry oriented company; PPGx, Inc., a majority owned pharmacogenomics company; and Akkadix Corporation (formerly Xyris), a majority owned agricultural biotechnology company.

Except for the historical information contained herein, this press release contains forward-looking statements that involve risks and uncertainties which could cause Axys' actual results to differ materially from those discussed here, including the risk of Axys' early stage of development, the risk of unexpected difficulties and delays in the development of new therapeutics, the risk that clinical trials will not proceed as anticipated or may not be successful, the risk that Axys' collaborations will not be successful, Axys' reliance on the efforts of its collaborative partners, the risk that Axys will not be successful in entering into new collaborations, competition and marketing risk, and general economic conditions that may affect Axys' actual results and developments. Additional factors that could cause or contribute to such differences include, but are not limited to, those discussed in the sections entitled "What Factors Could Cause Our Results to Differ Significantly from Those You Might Expect?" in the company's SEC Reports, including the company's report on Form 10-K for the fiscal year ended December 31, 1998.

For more information on Axys Pharmaceuticals, Inc., please visit the company's website at http://www.axyspharm.com. -0-

                      AXYS PHARMACEUTICALS, INC.
                Consolidated Statements of Operations
                             (unaudited)

                              Three months ended     Six months ended
                                   June 30,              June 30,
                               1999      1998(a)     1999      1998(a)
                              (in thousands, except per share amounts)
Revenues
Collaboration and
 licensing revenues        $   6,134  $   8,299  $  14,796  $  16,650
Product and service
 revenues                      2,193        798      5,335        881
   Total revenues              8,327      9,097     20,131     17,531

Operating expenses
Cost of products sold            902        (57)     1,450        387
Research and development      16,740     13,944     32,665     28,987
General and
 administrative                4,552      3,690      7,753      7,122
Acquired in process
 research & development           --         --         --    124,888
   Total operating expenses   22,194     17,577     41,868    161,384

Operating loss               (13,867)    (8,480)   (21,737)  (143,853)

Interest income, net             295        749        695      1,562
Equity interest in loss
 of joint venture               (267)      (445)      (830)      (902)
Minority interest                625         --        911         --

Net loss                   $ (13,214) $  (8,176) $ (20,961) $(143,193)

Basic and diluted net
 loss per share            $   (0.44) $   (0.27) $   (0.69) $   (4.87)
Shares used in computing
 basic and diluted net
 loss per share               30,359     29,999     30,340     29,390


                   Consolidated Balance Sheet Data
                             (unaudited)

                                       June 30,        December 31,
                                         1999              1998
                                    (in thousands)   (in thousands)

Cash & marketable investments         $  52,355        $  72,717
Accounts receivable                       4,148            2,140
Total assets                             89,421          107,262
Accumulated deficit                    (250,856)        (229,895)
Total stockholders' equity               39,979           60,512

(a)  Cost of products sold have been restated to conform to the 1999
     presentation.