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Thursday, March 25, 2004 - Page updated at 12:00 AM

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Rosetta's thriving as Merck subsidiary

Seattle Times business reporter

Dr. Stephen Friend started a company to radically improve drug discovery by using computers, but when he sold Rosetta Inpharmatics to Merck, some thought his dream would die inside a corporate bureaucracy.

Yesterday, nearly three years after the acquisition, he got a standing ovation from employees at the opening of a multimillion-dollar research center Merck built for its Rosetta subsidiary in Seattle's South Lake Union neighborhood.

Many of the employees know the history well. Merck bought Rosetta for about $630 million in July 2001, when investors were walking away from the high-fliers of the Human Genome Project boom. If Rosetta had stayed independent and tried to live by selling its products to other companies, it might have ended up like Incyte or Celera Genomics — companies that had to shut down cutting-edge research or dramatically overhaul their businesses to survive.

Instead, Rosetta has consolidated its several workspaces in Kirkland and Bothell at its new Seattle research center, kept its name-brand identity, and grown from 175 people to 275. Friend, a former researcher at the Fred Hutchinson Cancer Research Center, works out of Merck headquarters in New Jersey and has been promoted to senior vice president, along with the operations man from Rosetta, John King.

Rosetta researchers still wear T-shirts to work, and the break-room refrigerators are still stocked with free soda and juice.

"People here are more stable, and their job is going to impact more people than it would have before," Friend said. "The No. 1 question at the time of acquisition was, 'How are we ever going to impact Merck?'

"But every single one of those people can now point to projects where they can say, 'Aha, I helped that guy, or I helped on this.' Before, they were somewhat removed, creating tools for others."

Merck has spent $20 billion on research and development over the past decade but has few promising drugs to show off to Wall Street. It has a long history of research independence and has resisted acquiring innovative small companies. It still can't say for sure whether it got its money's worth with Rosetta.

Merck isn't promising Rosetta will keep growing in Seattle. The South Lake Union center is only one of the company's 10 research centers, which employ a total of 13,000 people. But Merck says it has high hopes that Rosetta will make a difference in screening cancer compounds and genetic targets, which hasn't traditionally been one of the company's strengths.

Friend said Rosetta's genetic-profiling capabilities are making it possible to subdivide groups of patients who have genetic targets that can be hit and consistently modified by a chemical compound, versus patients with different genetic makeups who respond differently.

Merck is also using Rosetta's technology to examine how tiny modifications to compounds can reduce toxic side effects. In theory, the technique can predict which compounds will fail before time and money is wasted on human testing. That's important to drug companies because drug research and development is notoriously inefficient — fewer than 1 percent of compounds screened in the lab ultimately become approved drugs.

"We're using molecular profiling to improve the probability of success, and we're in a low-probability-of-success business, so anything we can do to increase it is extremely valuable," said Peter Kim, president of Merck Research Laboratories.

Tom Ranken, chief executive of Seattle-based VizX Labs, a computational biology startup, said some people mourn the buyout of an up-and-coming company, but Rosetta may be lucky to have found a purpose within Merck at the time it did.

"It's a very interesting question to ask, about what would things have been like if Merck had not stepped in," Ranken said. "Rosetta had great technology, they were doing fabulous stuff with enormous potential, but sometimes the market doesn't recognize it. Rosetta may have had brilliant timing."

Luke Timmerman: 206-515-5644 or ltimmerman@seattletimes.com

Copyright © 2004 The Seattle Times Company

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