Sugen Inc. has entered a cancer drug development collaboration withLondon-based Zeneca Group that could be worth in excess of $50million to the Redwood City biotechnology company over the nextfive years.

Under the agreement, Sugen will use its technology to identify thecellular signal transduction pathways involved in certain cancers andhelp Zeneca screen its extensive library of small molecules forcompounds that can inhibit the targeted pathways. Zeneca thenwould be responsible for pre-clinical and clinical development ofthose compounds that demonstrate therapeutic benefit.

Sugen's chairman and CEO, Stephen Evans-Freke, said the strategicalliance builds on both company's non-cytotoxic approach to development of drugs for cancer.

Zeneca, Evans-Freke said, is the number two cancer pharmaceuticalcompany in the world, but number one is developing cytostatictherapeutics, which block cancer cell growth, as opposed tocytotoxic drugs, which kill cancer cells.

The collaboration calls for Zeneca to purchase nearly 790,000 sharesof Sugen stock at $15.84 per share for a total of $12.5 million. Theequity investment added to Zeneca's $7.5 million purchase of sharesduring Sugen's initial public offering last October gives Zeneca a19.99 percent ownership position in Sugen.

Zeneca also will pay another $5 million to Sugen upon finalizationof the collaboration agreement.

In addition, the deal includes research funding based on achievementof milestones as well as royalties on sales of any products developed.

Although Evans-Freke declined to specify the milestones and thepayments they will trigger, he said, "Taking a conservative view of alikely outcome of the collaboration, if we are moderately successful,the research funding, milestones and equity investment would total atleast $50 million."

The agreement covers five specific cancer targets, but does notinclude Sugen's other development-stage programs. Sugen's mostadvanced product is SU101, a platelet-derived growth factor receptorantagonist.

In December, the company filed an investigational new drugapplication with the FDA to begin clinical trials of SU101 fortreatment of solid tumor cancers, such as brain tumors and ovariancancer.

Evans-Freke said the agreement not only provides Sugen withconsiderable funding, but is significant in two other ways.

Zeneca has agreed to give Sugen access to its library of 300,000small molecule compounds to screen against cancer and otherdisease targets outside the scope of the companies' collaboration.And if Sugen finds a potential drug candidate, it will be able todevelop the product.

The other significant aspect, Evans-Freke said, is that Zeneca hasgranted Sugen right of first negotiation to license any other drugcandidates Zeneca discovers, but decides not to pursue.

Sugen's technology focuses on specific signaling pathways ofreceptor tyrosine kineases and receptor tyrosine phosphates. Theyare two of the largest known families of receptors and are consideredkey regulators of such cellular functions as growth, maturation,migration, metabolism and survival.

Sugen's stock (NASDAQ:SUGN) closed Monday at $7, up 75 centsand Zeneca (NYSE:ZEN) also increased 75 cents to $41. n

-- Charles Craig

(c) 1997 American Health Consultants. All rights reserved.