They were right.

Maxygen hit Wall Street at $36 a share, far above its initial pricing of $16 a share. The gene-manipulation company is offering 5.5 million common shares to investors.

"There’s no question if you’d invested with Zaffaroni every time you’d have made a lot of money," says Jim McCamant, editor of the Medical Technology Stock Letter, based in Berkeley, Calif. 

Zaffaroni is considered one of the biotech industry’s leading figures, having created or cofounded a number of successful firms, including Alza Corp. in 1968, DNAX Research Institute in 1980, Affymax in 1988, Symyx Technologies Inc. in 1993, and Affymetrix Inc. in 1993.

"He’s one of the grandfathers of the industry," says Karen Bernstein, the editor of BioCentury, a Belmont, Calif.-based biotech newsletter. "He has an excellent reputation. People take seriously any company he’s associated with."

Zaffaroni’s latest creation, Santa Clara, Calif.-based Maxygen, was spun off from Glaxo Wellcome PLC’s {GLX} Affymax Research Institute in 1997.

Since then, the company has carved out a leading role in an emerging field known as "directed molecular evolution." Maxygen's proprietary and patented technologies mimic and accelerate the process of evolution to create novel genes for a variety of potential applications, including developing new chemicals, pharmaceuticals, vaccines and agricultural products.

Maxygen is conducting research on more than 35 potential products in coordination with several well-known partners.

"This isn’t just a tool company," McCamant says. "They’re pioneering a new way of doing things and also using those techniques to develop new products."

Analysts say Maxygen is further along the product development curve than many other two-year old biotech firms.

"The time spent developing the technology [and applying for patents] at Affymax gives Maxygen an established air," wrote Ilan Zipkin, in a recent issue of BioCentury. "Zaffaroni’s philosophy of company formation continues to be focused on validated enabling technology."

Zaffaroni’s business strategy "increases chances that his company will be around for the long term," Zipkin says.

The technology has drawn the interest of a number of leading players in the industry. Last May, Maxygen announced it had received a milestone payment from Pfizer Inc. {PFE}, which was linked to progress on a joint enzyme-development research program.

"Our collaboration with Pfizer is one of several proof of principle collaborations that we have not disclosed," says Russell Howard, Ph.D., Maxygen’s president and CEO, at the time the payment was received.

In late September, Maxygen announced it had received a $6.7 million, three-year grant from the Defense Department’s Advanced Research Projects Agency (DARPA) to use its proprietary "MolecularBreeding" technology, also known as "DNA shuffling," to develop aerosol-based vaccines to protect against a broad range of diseases. Maxygen had previously won two other DARPA grants, $5.6 million in 1998 and $7.7 million earlier in 1999.

"By itself, that’s not a reason to buy the stock," McCamant says. "But it does validate the fact they are on the cutting-edge."

Including its deal with Pfizer, Maxygen has raised $67 million in committed funding from strategic partners and collaborators. The company could garner another $145 million over the next few years, based on the accomplishment of certain performance milestones, in addition to royalties on product sales. Collaborating firms include Abbott Laboratories {ABT}; Novartis {NVTSY]; Novo Nordisk A/S {NVO} the world’s largest producer of industrial enzymes; Pioneer Hi-Bred International, a subsidiary of E.I. duPont de Nemours & Co. {DD}.

"In our strategic collaborations, in exchange for commercial licenses to the products developed during the program in specified fields, we typically seek up-front license fees, collaborative-research funding, technology-advancement funding, milestone payments for significant developments and royalties on product sales," according to a statement that appears on the Maxygen Web site.

McCamant says the Maxygen IPO is one of a number of biotech IPOs that he thinks will be successful over the coming months.

"The industry’s gathering momentum," McCamant says. "The indexes are up over 100 percent over where they were a year ago, and people are moving money into the group again."

Maxygen reported a loss of $6.07 million on revenue of $9.31 million for the nine months ended Sept. 30, as compared with a loss of $4.33 million on revenue of $1.81 million for the same period a year earlier.

The company’s five-person scientific advisory board includes three Nobel Prize winners: Dr. Baruch S. Blumberg; Dr. Arthur Kornberg; and Dr. Joshua Lederberg.

"It’s obviously a quality company with quality founders," Bernstein says.