Merck's desire to sharpen up its research and churn out more billion-dollar drugs has led it to bet on the biotechnology axis at Seattle's South Lake Union. Yesterday, the world's second-biggest pharmaceutical company said its wholly owned subsidiary, Rosetta Inpharmatics, signed a lease for 133,000 square feet in a South Lake Union construction project being backed by Paul Allen's Vulcan and Schnitzer Northwest.

The move will enable Merck to merge six buildings spread between Kirkland and Bothell into a single lab and office hub in Seattle a few minutes away from leading-edge research at the University of Washington, the Fred Hutchinson Cancer Research Center, Seattle Biomedical Research Institute and ZymoGenetics. Merck said it plans to move into the neighborhood during the early part of 2004, and to grow. It acquired about 185 employees when it bought Rosetta a year ago. It has 230 employees there now, and it intends to boost that number to 300 by the end of 2005. Dr. Stephen Friend, a vice president of Merck and president of Rosetta, co-founded Rosetta in 1996 while he was a leading scientist at "The Hutch." The Hutch will be close to the new Merck building on Terry Avenue North between Harrison Street and Mercer Street, among the four-building Interurban Exchange project.

Friend said Merck is moving to take advantage of its cluster of bright minds. Despite Merck's staggering $2.4 billion research and development budget, the company, like many others, has taken heat on Wall Street because its pipeline of potential new drugs is drying up.

"No matter how large a pharmaceutical company gets, we recognize that 90 or 95 percent of the research that goes on out there is in the academia or biotech," Friend said. "Sometimes I think pharmaceuticals have gotten a little too proud and they didn't think they needed to make links to academia and biotech communities, but that's not our attitude at all."

Merck already has toeholds in biotech hotbeds in San Diego, Boston and near Oxford, England.

Merck got its first footing in the Seattle area with its $620 million purchase in July 2001 of Rosetta.

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Rosetta's technology aims to analyze which genes are switched on and off in diseased tissues, giving scientists a better idea of where to aim potential new drugs. Merck says it hopes the new methods will cut down the industry's margin of error, in which about one in 5,000 compounds tested on the lab bench ever turns into a drug. That approach is a prime reason why it can take 12 years and $800 million to develop an FDA-approved drug, and why, the industry says, drugs cost so much.

Merck spokeswoman Janet Skidmore said she could not point to specific advancements Rosetta has made so far in Merck's drug-development pipeline, but the company believes strongly in its future. The hope, she said, is that Rosetta will help Merck become efficient.

Ruth Scott, president of the Washington Biotechnology and Biomedical Association, said she hopes Merck will become more integrated into the biotech community.

With many biotech companies getting closer to bringing drugs to market, and with some starved for cash, combined with pharmaceutical companies facing dry pipelines, the two industries are expected to continue working hand in hand.

Since Washington is home to about 170 biotech companies, some of that merging could happen here.

"There are some very natural collaborations that we'll see occurring between biotech and Big Pharma," Scott said. "It's a natural partnership."

Luke Timmerman can be reached at 206-515-5644 or ltimmerman@seattletimes.com.