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The Spirit Of A Startup Lives On


It sounds like a classic debacle. A small biotech firm battling difficult odds and major setbacks discovers a promising drug for cancer. But after a series of mergers, the upstart is swallowed by a pharmaceutical goliath and operations are shut down. Although the big drugmaker continues to develop the treatment, the innovative team behind it is scattered to the winds.

That, in a nutshell, is the history of a once-hot biotech firm called Sugen. But it is hardly a sob story. The chronicle of the company and its drug, Sutent, clearly illustrates how marriages between pioneering biotech companies and pharmaceutical giants can turn out to be both disruptive and productive.

Considered one of the most innovative biotech startups of the mid-1990s, Sugen pioneered a first-in-class drug for two cancers that are extremely hard to treat: renal cell carcinoma and gastrointestinal stromal tumors (GIST). After going through three successive mergers, the Sugen team was disbanded in 2003 by Pfizer Inc. (), its final owner. The drug survived, however, and is widely expected to win approval from the Food & Drug Administration within months.

The lesson? Small biotech operators may have the relentless focus -- what Sugen veterans call a touch of insanity -- that enables them to buck conventional wisdom and make important discoveries. But it's Big Pharma's dollars and expertise that often gets these therapies to market. And once the Pfizers of the world take over, those insane biotech veterans fly off to start the whole process over again. "One could argue that this is how things in the biotech industry are supposed to happen," concludes Dr. George D. Demetri of Dana-Farber Cancer Institute in Boston, a close observer of Sugen's life cycle.

SOUTH SAN FRANCISCO HUB

Today, former Sugen scientists are fueling innovation around the world. Many stayed in the South San Francisco area, a region so thick with biotech firms that there's a standing joke about people changing companies without changing parking spots. Genentech Inc. () and Chiron Corp. () each host a number of Sugen vets. Others are involved in a new generation of startups. Sugen co-founder Axel Ullrich has even licensed back a Sugen patent from Pfizer and is using it as the basis for a new cancer therapy at another company he has started. "We are all having fun in our new jobs," says former Sugen President Laura Shawver, who now runs Phenomix Corp. in San Diego. "We think we'll get to develop other novel drugs."

Sugen's trajectory will probably be followed by many biotech startups in the years ahead. Big Pharma companies are suffering from near-empty product pipelines and looming patent expirations. At the same time, a weak market for initial public offerings has made biotech companies more receptive to selling out than they were even a few years ago. Merchant bank Burrill & Co. says that in the first nine months of this year the 20 largest pharmaceutical companies made 13 acquisitions, compared with just 15 for all of 2003 and 2004.

Sugen, like many other biotech companies, grew out of the work of two pioneering scientists, Ullrich, a director of the Max Planck Institute of Biochemistry in Munich, and Joseph Schlessinger, now a professor at Yale School of Medicine and co-founder of a new startup, Plexxikon Inc. The two focused on proteins called kinases that regulate the way messages pass between the outer surface of a cell and its inside. When kinases go awry, they can send out signals that lead to uncontrolled tumor growth.

ORANGE ALERT

The Sugen team spent several years coming up with compounds that would block certain cancer-promoting kinases. One family of related chemical compounds seemed to hit the chosen target. Jerry McMahon, who joined Sugen in 1993 and was president when Pfizer shut it down in 2003, says a larger company might have played it safe and continued searching for other classes of compounds. But with limited funds and a gut feeling that this group of molecules could pay off, Sugen scientists zeroed in on them. (Sugen's commitment to the compounds literally left a mark: The chemicals had a distinct orange hue, staining Sugen's labs and equipment a strange orange color.)

Like many startups, Sugen's culture was one of working hard and playing harder. Executives and scientists often put in nights and weekends. But each week the staff wrapped up with a TGIF party. The Halloween parties were legendary, says K. Peter Hirth, president of Sugen during the 1990s. Hirth once made a presentation to the board on Halloween decked out in a Snow White outfit complete with fake eyelashes.

Despite all the levity, Sugen was under considerable pressure. It had gone public in October, 1994, and McMahon says Sugen rushed its lead compound, known as SU5416, into development too quickly in an effort to show stockholders it could produce results. The scientists could have used more time to improve the way SU5416 was absorbed in the body. Granted, successful early results with SU5416 helped attract Pharmacia & Upjohn, which bought Sugen for $650 million in 1999. But the drug failed in human trials a few years later. Sugen veterans say that if the company had been independent, it would have been tough after such a failure to raise enough money to keep going.

CLEAN HIT

Thanks to Pharmacia's resources, Sugen was able to switch focus to a second compound already in early clinical trials. Then it was called SU11248; today it's Sutent. But the drug was controversial. While SU5416 blocked only one kinase, Sutent targeted several. That sounds good, but it made the drug a hard sell, given that it was following on the heels of Gleevec, a revolutionary single-target cancer drug from Novartis () that won approval in 2001. Gleevec's success sparked an industry-wide enthusiasm for cancer drugs that take aim at one cellular target -- a nice, clean hit.

Pharmacia, meanwhile, had merged with Monsanto Co. in 2000 and dropped Upjohn from its name. Executives at the newly created megapharma were concerned that Sutent's multitarget activity would produce too many side effects. At this juncture, Sugen's relative autonomy within Pharmacia was a boon. If not for that, argues ex-Sugen President Shawver, there would have been little leverage to push Sutent into clinical trials in 2001, and the drug might have died. "With major breakthroughs there is usually someone very passionate driving it," says Fred Hassan, Schering-Plough Corp. CEO and former head of Pharmacia. "Big companies are not good at that passion."

The passion was extinguished in 2003 when Pfizer bought Pharmacia. Pfizer already had a large lab in La Jolla, Calif., working on kinases. It decided to close Sugen's Northern California offices, and only a small fraction of Sugen's 350 employees stayed on. By then, however, the drug was far enough along that Pfizer was willing to throw its considerable weight behind it, backing 50 trials on Sutent worldwide. Pfizer says that Sutent appears to improve survival for patients with renal cell carcinoma, a nasty and hard-to-treat cancer -- and that it extends survival for GIST patients who are resistant to Gleevec. It is also being tested against neuroendocrine and breast cancer.

All of this delights Laurie M. Strawn, one of the few ex-Sugenites who stayed with Pfizer. She and her former colleagues talk of a reunion if the drug gets O.K.'d. But don't expect Pfizer to host it. "We tend not to have parties," says Martin Mackay, Pfizer's head of research and technology. "We just get on with our work." Not such a bad thing.

By Amy Barrett, with Catherine Arnst in New York


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