ArQule is lead story in Sunday's Boston Globe Business
boston.com
EMERGING BUSINESS
Thriving by testing other firms' promise
By taking on ordeal of discovering new drugs, ArQule benefits biotech companies
By Ronald Rosenberg, Globe Staff, 01/11/98
Just as ''Intel Inside'' brands the name of the brainy chip inside most personal computers, ArQule's knowhow will be inside a lot of new pharmaceuticals in the next five to seven years, Eric B. Gordon predicts.
Gordon is president of the fast-growing Medford company, which collaborates with small biotechnology and major drug and agrochemical firms to find the key ingredients for the next wave of pharmaceuticals. This means testing tens of thousands of compounds, each one slightly different in its molecular structure, against a particular biological target - such as a specific gene involved with obesity - to find a family of compounds. Once these compounds are isolated, further tests could lead to a promising drug.
Until recently, big pharmaceutical companies spent up to six years and millions of dollars searching for the right combination, each chemist painstakingly evaluating 50 compounds a year hoping to find one that might become a drug. Often that long and expensive process ended in failure.
In contrast, ArQule has developed proprietary technology it claims can evaluate thousands of compounds and reduce the drug discovery process from six years to two years - a significant savings in both time and cost.
Over the last five years, robots - combined with advances in biochemistry and molecular, cellular, and structural biology - have significantly sped up the testing of compounds.
ArQule claims to have taken new drug discovery technology several steps further by using powerful computers and software to design drugs molecule by molecule.
Once ArQule has developed a family of compounds that can potentially treat a specific disease, it hands them off to its clients, the drug makers. The clients in turn select a compound, package it, conduct extensive animal and human clinical trials, seek US Food and Drug Administration approval and, if approved, ultimately manufacture and market the product. ArQule receives fees for its drug discovery technology - about $1 million per year - along with milestone payments from its clients plus royalties on any government-approved drugs.
While it is too early to determine whether the ArQule-discovered compounds will become FDA-approved pharmaceuticals, the company's approach to delivering promising drug candidates has attracted significant attention.
''In our view, ArQule has the necessary mix of technologies and capabilities that the pharmaceutical industry will want to license and be enormously fruitful for drug discovery and development,'' noted Michael G. King Jr., vice president and biotechnology analyst at Vector Securities International. ''Indeed, ArQule accelerates the traditional medicinal chemistry practiced by the large pharmaceutical companies, making their job more efficient, faster, and cheaper.''
Not surprisingly, business is rather brisk at ArQule, as biopharmaceutical companies are finding their way to Medford. Tomorrow at a health care investment conference in San Francisco, ArQule's Gordon is expected to announce that in the 21 months since it began offering its drug discovery service, 10 new compounds have entered the animal testing stage, with one drug expected to start human clinical trials later this year.
Those results stem from 23 collaborations - 16 with biotechnology firms and seven with large pharmaceutical companies - valued at more than $375 million in potential fees and milestone payments to ArQule in the coming years. About $82 million of that total is firmly committed.
ArQule's growing list of collaborators has enabled the company to recently report its first quarterly profits - $303,000, or 2 cents a share, in the third quarter of 1997. Wall Street analysts expect the company to be profitable for the full year. For the nine months ended Sept. 30, ArQule lost $427,000, or 4 cents a share, on revenues of $11.23 million, compared to a $2.2 million loss, or 30 cents a share, on revenues of $6.8 million in the 1996 nine-month period.
''As these compounds advance through clinical development toward the marketplace, ArQule will have driven a substantial portion of the new drugs in the health care armamentarium of the next decade,'' said Gordon.
The largest of the seven drug companies is the Wyeth-Ayerst division of American Home Products, the Madison, N.J.-based pharmaceutical products giant that has agreed to spend as much as $100 million with ArQule to find 15 potential compounds that could lead to one or more drugs.
ArQule's drug discovery capabilities are also used to validate whether a promising compound developed within a drug maker's laboratory is potentially the best candidate to treat a specific disease.
Sugen Inc., a biopharmaceutical company in Redwood City, Calif., had a lead compound and wanted a second opinion on whether the chemical structure was as good as it could be before launching clinical testing.
''We had many variations and we did not want to miss out by choosing the wrong one, so we turned to ArQule, which in a relatively short period of time, tested it and helped us determine our patent position,'' said Peter Hirth, Sugen's executive vice president for drug research and development. ''Without their help, it would have been a much... riskier proposition to go forward.''
ArQule's primary attraction to pharmaceutical and biotech companies for drug discovery is reminiscent of other industries that have outsourced segments of their businesses to become more productive and profitable. The pharmaceutical industry is just starting to turn to others, such as biotech firms, for promising new drug candidates as their own chemistry-oriented scientific staffs have been focused on improving existing drugs.
In turn, biotech firms are strong on biology and new ideas but weak in chemistry - and cash. So ArQule takes small equity stakes in these companies along with lower fees.
''In some ways we are Intel and Microsoft together,'' said Joseph C. Hogan Jr., ArQule founder, chairman, and senior vice president of research and development. ''We are really in the information business, but instead of writing computer programs we are creating drugs.''
Hogan created the company technology, called mapping arrays, after spending 15 years at Polaroid Corp. working closely with founder Edwin Land, followed by several years at Millipore Corp. At Polaroid, he learned about developing molecules to perform specific functions for photographic dyes, while at Millipore he saw how pharmaceutical firms had problems purifying biological molecules.
''Joe is the kind of blue-collar guy who can look at a problem and say, 'Yeah, I can do that and make it happen,' and that's what happened here,'' said Gordon.
ArQule's technology, developed in Hogan's Belmont home, is based on combining the chemistry and the biology from those experiences, said Hogan, who spent the two years after he left Millipore figuring out how to connect chemical molecules in a strategic way.
''I just sat on my porch and wrote plans and analysis, thinking how to create sort of a high-speed Lego building block program with chemical molecules,'' he said.
From those plans, Hogan and Robert Dishman, a vice president of marketing at Waters Associates, which was part of Millipore, decided to form a company and raised $4.5 million from Sevin-Rosen Partners - the same venture capital firm that launched Compaq Computer Corp.
Since then the company has raised additional venture capital and launched an initial public offering last spring at $12 a share, followed by two additional stock offerings. Since its IPO, the price has more than doubled, before closing Friday at 20 1/2, down 1 1/2.
This story ran on page D04 of the Boston Globe on 01/11/98.
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