SUGEN INC, 424B4, 1997-11-07

SUGEN INC
424B4, 1997-11-07
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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<PAGE>

PROSPECTUS

2,000,000 SHARES

[LOGO]
COMMON STOCK

All of the 2,000,000 shares of Common Stock offered hereby are being sold by
SUGEN, Inc. ("SUGEN" or the "Company"). Zeneca Limited, a wholly owned
subsidiary of Zeneca Group PLC, has indicated to the Company that it intends to
purchase 456,000 shares in the Offering at the public offering price. The
Company's Common Stock is quoted on the Nasdaq National Market under the symbol
SUGN. On November 6, 1997, the last reported sale price of the Common Stock was
$16.13 per share. See "Price Range of Common Stock."

--------------

THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.

-------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share.......................................... $16.00 $0.92 $15.08
Total (3).......................................... $32,000,000 $1,840,000 $30,160,000
</TABLE>

(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.

(2) Before deducting expenses payable by the Company estimated at $500,000.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 300,000 additional shares of Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Company will be
$36,800,000, $2,116,000 and $34,684,000, respectively. See "Underwriting."

--------------

The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about November 13, 1997, at the offices of the agent of
Hambrecht & Quist LLC, New York, New York.

HAMBRECHT & QUIST

LEHMAN BROTHERS

UBS SECURITIES

November 7, 1997

<PAGE>
AVAILABLE INFORMATION

The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549. The Commission also makes electronic filings
publicly available on the Internet within 24 hours of acceptance. The
Commission's Internet address is http://www.sec.gov. The Commission's site also
contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the Commission.

Additional information regarding the Company and the shares offered hereby
is contained in the Registration Statement on Form S-3 and the exhibits thereto
filed with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information
contained in such Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus regarding the contents of any document
or contract may be incomplete and, in each instance, reference is made to the
copy of such contract of document filed as an exhibit to the Registration
Statement. For further information pertaining to the Company and the shares,
reference is made to the Registration Statement and the exhibits thereto, which
may be inspected without charge at, and copies thereof may be obtained at
prescribed rates from, the office of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549.
--------------

INFORMATION INCORPORATED BY REFERENCE

The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference: (1) Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, (2) Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997, (3) Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997, (4) the Company's Definitive
Proxy Statement dated April 9, 1997, filed in connection with the Company's 1997
Annual Meeting of Stockholders, (5) the Company's Current Report on Form 8-K,
filed on September 18, 1997, (6) the Company's Current Report on Form 8-K, filed
on October 27, 1997 and (7) the description of the Company's Common Stock set
forth in the Company's Registration Statement on Form 8-A filed with the
Commission on September 13, 1994.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offering of the Common Stock hereunder shall be deemed to be
incorporated by reference herein and to be a part of this Prospectus from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

The Company will provide without charge to each person to whom this
Prospectus is delivered, a copy of any and all such documents (exclusive of
exhibits unless such exhibits are specifically incorporated by reference
herein), upon written or oral request to SUGEN, Inc., 351 Galveston Drive,
Redwood City, California 94063, telephone number (650) 306-7700, Attn: Corporate
Communications and Investor Relations.

Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document that also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
--------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE AND OTHER
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ STOCK MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
--------------

"SUGEN" is a trademark of the Company. This Prospectus also contains
trademarks of companies other than the Company.
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS.

THE COMPANY

SUGEN is a biopharmaceutical company focused on the discovery and
development of small molecule drugs which target specific cellular signal
transduction pathways. These signalling pathways are regulated by cell-surface
receptors or intracellular signalling molecules known as tyrosine kinases
("TKs"), tyrosine phosphatases ("TPs") and serine-threonine kinases ("STKs").
TKs, TPs and STKs are three of the largest known families of receptors in the
body and are key regulators of critical cellular functions. Aberrant signalling
of TKs, TPs and STKs has been shown to result in a variety of chronic and acute
pathological diseases, including cancer and diabetes as well as in dermatologic,
ophthalmic, neurologic and immune disorders. The Company believes that compounds
designed to target certain kinases and phosphatases and inhibit enzyme activity
or prevent the binding of downstream signalling molecules make attractive
therapeutic product candidates. The Company's research and development efforts
in signal transduction are based upon the pioneering accomplishments of SUGEN's
founding scientists, Dr. Axel Ullrich of the Max-Planck-Institut fur Biochemie
("MPI") and Dr. Joseph Schlessinger of New York University Medical Center
("NYU").

SU101, the Company's most advanced product candidate, is a platelet-derived
growth factor receptor ("PDGF TK") signalling antagonist. Imbalances in the PDGF
TK signalling pathway have been shown by SUGEN and others to be implicated in
certain types of cancers. The Company is in the process of completing the data
analysis on a Phase II clinical trial for use of SU101 as a treatment for
refractory malignant glioma and currently expects to initiate a Phase III
clinical trial in this indication in late 1997, subject to FDA review of the
planned trial design. A Phase II clinical trial of SU101 in combination with
BCNU, the chemotherapy drug that is part of the standard treatment regimen in
newly diagnosed brain cancer patients, was initiated recently, and the Company
currently expects to initiate a Phase II clinical trial of SU101 in hormone
refractory prostate cancer by the end of 1997. To date, over 140 patients have
been treated with SU101 in seven Company-sponsored clinical trials including
patients with brain, ovarian, prostate and non-small cell lung cancers.

The Company is also conducting its initial Phase I clinical trial for its
second cancer product candidate, SU5416, a Flk-1/KDR TK antagonist which
inhibits angiogenesis (the process by which blood vessels are formed). The
pharmaceutical industry has long sought tumor-specific inhibitors of
angiogenesis with low toxicity profiles because, theoretically, inhibiting
angiogenesis may limit tumor growth, extend the period of disease-free remission
in patients who respond to front-line therapy and reduce the potential for
metastases. Potential oncology applications for angiogenesis include treatments
for most solid tumor types. SUGEN is also pursuing five additional
cancer-related drug development programs, including GRB2, Raf and orally
available PDGF TK inhibitor programs, in all of which lead compounds are now
undergoing IN VIVO pharmacology studies.

SUGEN is also applying its drug discovery and development platform to areas
outside oncology, including dermatology, ophthalmology, rheumatoid arthritis,
cardiovascular disease, diabetes, neurodegenerative diseases and immunology. The
Company is conducting a Phase I clinical trial for SU5271, an epidermal growth
factor receptor ("EGF TK") antagonist, for the treatment of psoriasis.

3
<PAGE>
discovery and development platform may reduce the cost, time and risk associated
with bringing potential products to market by rationally screening for potent
and specific drug leads in the early stages of discovery and optimizing
pharmacologic features in the later stages of drug development, thereby reducing
the incidence and severity of side effects.

SUGEN is concurrently pursuing two business strategies for commercialization
of its products and technologies. In the cancer field, SUGEN intends to build a
vertically integrated oncology business in North America, with the objective of
bringing to market a family of target-specific signal transduction inhibitors
proprietary to SUGEN. To market its products effectively, the Company currently
intends to build a focused U.S. salesforce to target the major cancer treatment
centers. The Company plans to seek additional corporate partners to fund product
development and commercialize its products in Europe and Asia. This strategy is
exemplified by the Company's collaboration with ASTA Medica Aktiengesellschaft
("ASTA Medica") for the Pan-Her antagonist program and the Raf antagonist
program for the treatment of certain cancers. ASTA Medica has been granted
marketing rights to these programs in Europe and South America. While the
Company generally intends to retain rights to its cancer programs in North
America, SUGEN is funding a portion of its ongoing cancer research through a
collaboration with Zeneca Limited ("Zeneca") for the development of five
undisclosed cancer targets. Pursuant to its agreement with Zeneca, the Company
will have the opportunity to obtain profit participation rights in the North
American market by contributing to clinical development costs as incurred and
will receive milestone payments and royalties on worldwide sales. Zeneca has
indicated to the Company that it intends to purchase 456,000 shares in the
Offering at the public offering price.

Outside of oncology, the Company's strategy is to seek corporate
collaborations or joint ventures to which SUGEN contributes validated targets,
screening technologies and drug leads while the partner provides the
disease-specific and drug development expertise as well as marketing experience,
in addition to providing funding to bring potential products to market. As part
of this strategy, the Company entered into a collaboration with Vision
Pharmaceuticals, L.P., an affiliate of Allergan, Inc., and Allergan, Inc.
(collectively, "Allergan"), for angiogenesis inhibition in ophthalmic
applications.

SUGEN was incorporated in Delaware in 1991. The Company's executive offices
are located at 351 Galveston Drive, Redwood City, California 94063, and its
telephone number is (650) 306-7700.

4
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THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.......... 2,000,000 shares
Common Stock to be outstanding after the
Offering..................................... 15,117,854 shares(1)
Use of proceeds.............................. For research and development activities,
including preclinical studies and clinical
trials; investments in complementary
businesses, products and technologies; and
general corporate purposes and working
capital.
Nasdaq National Market Symbol................ SUGN
</TABLE>

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- ---------
1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Contract revenue..................................... $ 1,080 $ 5,470 $ 6,270 $ 13,843 $ 13,650 $ 7,908
Costs and expenses:
Research and development........................... 4,531 10,251 17,079 23,226 29,792 14,332
General and administrative......................... 1,591 2,169 3,106 5,086 5,529 2,967
--------- --------- --------- --------- --------- ---------
Total costs and expenses........................ 6,122 12,420 20,185 28,312 35,321 17,299
--------- --------- --------- --------- --------- ---------
Operating loss....................................... (5,042) (6,950) (13,915) (14,469) (21,671) (9,391)
Other income, net.................................... 86 283 251 2,500 1,790 934
--------- --------- --------- --------- --------- ---------
Net loss............................................. $ (4,956) $ (6,667) $ (13,664) $ (11,969) $ (19,881) $ (8,457)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net loss per share................................... $ (3.00) $ (3.89) $ (4.15) $ (1.32) $ (1.81) $ (0.81)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Shares used in computing net loss per share.......... 1,649 1,712 3,296 9,085 10,966 10,486
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Pro forma net loss per share(2)...................... $ (1.37) $ (1.39) $ (2.22)
--------- --------- ---------
--------- --------- ---------
Shares used in computing pro forma net loss per
share(2)............................................. 3,618 4,786 6,143
--------- --------- ---------
--------- --------- ---------

<CAPTION>
1997
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Contract revenue..................................... $ 2,971
Costs and expenses:
Research and development........................... 16,576
General and administrative......................... 2,990
---------
Total costs and expenses........................ 19,566
---------
Operating loss....................................... (16,595)
Other income, net.................................... 959
---------
Net loss............................................. $ (15,636)
---------
---------
Net loss per share................................... $ (1.20)
---------
---------
Shares used in computing net loss per share.......... 13,050
---------
---------
Pro forma net loss per share(2)......................
Shares used in computing pro forma net loss per
share(2).............................................
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA(3) ADJUSTED(3)(4)
--------- ------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.................... $ 42,864 $ 59,191 $ 88,851
Total assets......................................................... 48,713 67,674 97,334
Senior Custom Convertible Notes due 2000............................. -- 17,500 17,500
Capital lease obligations--non-current portion....................... 3,226 3,226 3,226
Accumulated deficit.................................................. (73,615) (73,615) (73,615)
Total stockholders' equity........................................... 33,642 35,103 64,763
</TABLE>

- ------------------------------

(1) Excludes, as of June 30, 1997, an aggregate of 3,091,031 shares of Common
Stock consisting of the following: 2,475,603 shares of Common Stock reserved
for issuance pursuant to the Company's stock option plans, pursuant to which
options to purchase 1,927,203 shares with a weighted average exercise price
of $9.06 per share were outstanding as of June 30, 1997; 503,644 shares of
Common Stock issuable pursuant to warrants with a weighted average exercise
price of $12.86 per share; and 111,784 shares of Common Stock reserved for
issuance under the Company's Employee Stock Purchase Plan. Subsequent to
June 30, 1997, (i) the Company issued 122,132 shares of Common Stock to
employees upon the exercise of stock options outstanding prior to June 30,
1997 and pursuant to an employee stock grant; 26,241 shares of Common Stock
to employees under the Company's Employee Stock Purchase Plan; $17.5 million
principal amount of 5% Senior Custom Convertible Notes due 2000 (the
"Notes") which are convertible into 1,142,857 shares of Common Stock
assuming a conversion price of $15.31 per share; and warrants to acquire
332,500 shares of Common Stock at an exercise price of $16.74 per share and
(ii) a warrant to purchase 133,333 shares of Common Stock expired without
exercise. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Recent Developments" and Note 13 of the Notes to
Financial Statements.

(2) Pro forma net loss per share information gives effect to the conversion of
all Preferred Stock outstanding from the date of issuance. See Note 1 of
Notes to Financial Statements.
(3) Gives effect to the issuance of the Notes as of June 30, 1997, including the
issuance of warrants to purchase a total of 332,500 shares of Common Stock
at an exercise price of $16.74 per share.

(4) As adjusted to reflect receipt of the estimated net proceeds from the sale
of 2,000,000 shares of Common Stock at the public offering price of $16.00
per share. See "Use of Proceeds" and "Capitalization."

For information on the Company's operating results for the third quarter of
1997, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Recent Operating Results and Developments."

------------------------
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE "UNDERWRITING."

5
<PAGE>
RISK FACTORS

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING RISK FACTORS
SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE OTHER INFORMATION IN THIS
PROSPECTUS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY.

EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL CHANGE. SUGEN is at an early
stage of development and must be evaluated in light of the uncertainties and
complications present in an early stage biotechnology company. The Company has
only been in existence since 1991 and to date three product candidates have
entered clinical trials. To achieve profitable operations, the Company, alone or
with collaborative partners, must successfully develop, manufacture, introduce
and market its proposed products. There can be no assurance that the Company
will be able to discover any additional lead compounds or develop any commercial
products. The time necessary to achieve market success for any individual
product is long and uncertain. Products, if any, resulting from the Company's
research and development programs are not expected to be commercially available
for a number of years even if they are successfully developed and proven to be
safe and effective. There can be no assurance that any of the Company's product
development efforts or those of its collaborative partners will be successfully
completed, that regulatory clearances will be obtained or will be as broad as
sought, that the Company's products will be capable of being produced in
commercial quantities at reasonable cost or that any products, if introduced,
will achieve market acceptance.

Drug discovery and development methods based upon TKs, TPs and STKs and
their signalling pathways are relatively new, and there can be no assurance that
these methods will lead to the discovery or development of lead compounds or
commercial products or that the Company will be able to employ these methods of
drug discovery or development successfully. Three of the Company's compounds
have been approved for clinical trials, but there can be no assurance that any
other of the Company's current or proposed compounds will be submitted or
accepted for clinical trials. In addition, safety or efficacy of the Company's
compounds has not been demonstrated. As additional potential lead compounds are
identified, they will require significant additional development, preclinical
studies and clinical trials, regulatory clearance and additional investment
prior to their commercialization, and there can be no assurance that any of
these efforts will be successful.

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The operations of
the Company to date have consumed substantial amounts of cash, and increasing
levels of funding will be necessary in order to conduct the costly and time
consuming research, preclinical studies and clinical trials required to develop
its product candidates and to establish manufacturing and marketing
capabilities. The Company's future capital requirements will depend on many
factors, including, among others, continued scientific progress of its research
and development programs, the ability of the Company to establish collaborative
arrangements, progress with preclinical studies and clinical trials, the time
and costs involved in obtaining regulatory clearance, the costs involved in
preparing, filing, prosecuting, maintaining and enforcing patent claims,
competing technological and market developments, changes in its existing
research relationships and commercialization activities and arrangements. The
Company estimates that its existing capital resources, after giving effect to
the net proceeds from the Offering, together with facility and equipment
financing, expected revenues from current collaborations and net income from
investment activities, will be sufficient to fund its planned operations into
2000. There can be no assurance that the underlying assumed levels of revenue
and expense will prove accurate. The Company intends to seek additional funding
through collaborative arrangements, public or private equity or debt financings
and capital lease transactions; however, there can be no assurance that
additional financing will be available on acceptable terms, or at all. If
additional funds are raised by issuing equity securities, further dilution to
stockholders may result. In addition, in the event that additional funds are
obtained through arrangements with collaborative partners or other partners,
such arrangements may require the Company to relinquish rights to certain of its
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize itself. If adequate funds are not available,
the Company may be required to delay, reduce the scope of or eliminate one or
more of its research or development programs, which

6
<PAGE>
would have a material adverse effect on the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT. The Company has
experienced significant operating losses since its inception in 1991. As of June
30, 1997, the Company had an accumulated deficit of approximately $73.6 million.
The Company expects to continue to incur significant additional operating losses
over the next several years and expects cumulative losses to increase
substantially as the Company's research and development efforts, including
preclinical studies and clinical trials, are expanded. The Company's ability to
achieve profitability is dependent on its ability, alone or with others, to
complete successfully the development of its proposed products, obtain the
required regulatory clearances and manufacture and market its proposed products.
There can be no assurance if or when the Company will achieve profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

DEPENDENCE ON COLLABORATIVE RELATIONSHIPS. The Company's strategy for the
discovery, development, management of clinical trials, manufacturing and
commercialization of its proposed products includes entering into various
collaborations with corporate partners, licensors, licensees and others, and is
dependent upon the subsequent success of these outside partners in performing
their responsibilities. Currently, the Company has corporate collaborations with
Zeneca, ASTA Medica and Allergan. Although the Company believes that Zeneca,
ASTA Medica, Allergan and any future corporate partners have or will have an
economic motivation to perform their contractual responsibilities, the amount
and timing of resources to be devoted to these activities by corporate partners
are not within the control of the Company. There can be no assurance that such
partners will perform their obligations as expected or that the Company will
derive any additional revenue from such arrangements over and above the
contractually required payment amounts. Moreover, there can be no assurance that
SUGEN will succeed in identifying lead compounds or developing commercial
products from either current or future collaborations.

The term of the Zeneca collaboration expires in January 2000, unless the
parties elect to extend such term. The collaborations with Zeneca, ASTA Medica
and Allergan may be terminated under certain circumstances including, in the
case of the Zeneca collaboration, a change in control of the Company.
Termination of these collaborations could result in the Company relinquishing
rights to certain technology or products jointly developed with the respective
party. In addition, the collaborations may be terminated for material breach.
The termination or material reduction in the scope of the collaborations could
have a material adverse effect on the Company.

In December 1995, the Company received, among other things, a technology
set-up fee of $4.0 million in connection with the ASTA Medica agreement. As of
January 1996, the Company had received a wind-down fee of $4.3 million in
connection with the termination of a prior collaboration with Amgen Inc.
("Amgen"). Through December 31, 1996, the set-up and wind-down fees from the
ASTA Medica and Amgen collaborations, respectively, had been fully recognized as
revenue. Going forward, the Company will not recognize any additional revenue
under the Amgen collaboration and will recognize additional revenue under the
ASTA Medica collaboration only upon achievement of specified milestones and for
services provided by ASTA Medica pursuant to the collaboration but on
non-collaboration programs.

There can be no assurance that Zeneca, ASTA Medica and Allergan or any other
future collaborator will not pursue their existing or alternative technologies
in preference to those being developed in collaboration with the Company.
Furthermore, there can be no assurance that the Company will be able to
negotiate additional collaborative arrangements on acceptable terms, or at all,
or that such collaborations will be successful. To the extent that the Company
chooses not to or is unable to establish such arrangements, it would require
substantially greater capital to undertake research, development and marketing
of its proposed products at its own expense. In addition, the Company may
encounter significant delays in introducing its proposed products into certain
markets or find that the development, manufacturing or sale of its proposed
products in such markets is adversely affected by the absence of such
collaborative arrangements.

7
<PAGE>
To complement its internal research capabilities, the Company works closely
with Dr. Joseph Schlessinger's laboratory within the Department of Pharmacology
at NYU, Dr. Axel Ullrich's Department of Molecular Biology at MPI and Dr. Werner
Risau's laboratory at the Max-Planck-Institut fur Physiologische and Klinische
Forschung ("MPP") (MPI and MPP are collectively referred to herein as
"Max-Planck Society" or "MPS".) While NYU and MPS have made certain contractual
commitments to the Company, they are independent entities and are not under the
control of the Company or its officers or directors. Furthermore, the contracts
between the Company and NYU and MPS (collectively, the "Research Contracts") do
not obligate these institutions to devote any specified level of resources to
the research related to potential products for the Company, nor do the Research
Contracts require the principal researchers, or any member of their respective
research teams, to continue to conduct research related to potential products
for the Company. In addition, under the Research Contracts, NYU and MPS retain
freedom to select the methods to be used by them in pursuing their research.
There can be no assurance that NYU or MPS will continue to conduct research
related to potential products for SUGEN or that they will select research
targets, or the means to address them, in a manner consistent with the Company's
best interests.

The Company's contracts with NYU and MPP expire in September 2001 and
October 1999, respectively, and the Company's contract with MPI expired in
August 1997 but is expected to be renewed in modified form. There can be no
assurance that these contracts will be renewed, or that any renewal will be made
on terms as favorable to the Company as those contained in the existing
contracts. The termination or expiration of any of the Research Contracts, or
the failure by NYU or MPS to continue to conduct research related to the
Company's potential products under the Research Contracts, could have a material
adverse effect on the Company. See "Business--Corporate and Clinical Development
Collaborations" and "--Research Collaborations."

UNCERTAINTIES RELATED TO CLINICAL TRIALS AND PRODUCT DEVELOPMENT. Before
obtaining regulatory clearance for the commercial sale of any of its products
under development, the Company must demonstrate through preclinical studies and
clinical trials that the potential product is safe and efficacious for use in
humans for each target indication. There can be no assurance that the Company
will be permitted to undertake or continue clinical trials for any of its
potential products or, if permitted, that such products will be demonstrated to
be safe and efficacious. Moreover, the results from preclinical studies and
early clinical trials may not be predictive of results that will be obtained in
large-scale and later-stage clinical trials. There can be no assurance that the
Company's clinical trials will demonstrate sufficient safety and efficacy
necessary to obtain the requisite regulatory approvals or will result in
marketable products.

The results of initial preclinical studies and clinical trials of the
products under development by the Company are not necessarily indicative of
results that will be obtained from subsequent or more extensive preclinical
studies and clinical testing. The Company recently announced interim results
from its Phase II clinical trial of SU101 in patients with refractory malignant
glioma. There can be no assurance that the interim results of this clinical
trial will be predictive of the clinical trial's final results or the results of
large-scale, later-stage clinical trials. In advanced clinical development,
numerous factors may be involved that may lead to different results in larger,
later-stage trials from those obtained in earlier-stage trials. Early-stage
trials usually involve a small number of patients, and thus may not accurately
predict the actual results regarding safety and efficacy that may be
demonstrated with a large number of patients in a later-stage trial. Also,
differences in the clinical trial design between an early-stage and late-stage
trial may cause different results regarding the safety and efficacy of a product
to be obtained. In addition, many early stage trials are unblinded and based on
qualitative evaluations by clinicians involved in the performance of the trial,
whereas later-stage trials are generally required to be blinded in order to
provide more objective data for assessing the safety and efficacy of the
product. As a result of these and other factors, the Company anticipates that
some of its potential products may not show efficacy in later-stage clinical
trials. A number of companies in the pharmaceutical industry, including
biotechnology companies, have suffered significant setbacks in advanced clinical
trials, even after promising results in earlier trials. The failure to
adequately demonstrate the safety and efficacy of a product under development
could delay or prevent regulatory clearance of the potential product and would
have a material adverse effect on the Company.

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Most drugs produce toxicities or undesirable side effects in animals and in
humans when administered at sufficiently high doses and/or for sufficiently long
periods of time. There can be no assurance that unacceptable toxicities or side
effects will not occur at any dose level at any time in the course of toxicology
studies or of clinical trials of the Company's potential products. The
appearance of any such unacceptable toxicities or side effects in toxicology
studies or in clinical trials could cause the Company or regulatory authorities
to interrupt, limit, delay or abort the development of any of the Company's
product candidates and could ultimately prevent their clearance by the FDA or
foreign regulatory authorities for any or all targeted indications. Even after
being cleared by the FDA or foreign regulatory authorities, a product may later
be shown to be unsafe or to not have its purported effect, thereby preventing
its widespread use or requiring withdrawal from the market. There can be no
assurance that any products under development by the Company will be safe when
administered to patients.

The rate of completion of the Company's clinical trials is dependent upon,
among other factors, the rate of patient enrollment. Patient enrollment is a
function of many factors, including the size of the patient population, the
nature of the protocol, the proximity of patients to clinical sites, competing
trials at clinical sites and the eligibility criteria for the study. The
Company's ability to conduct later-stage clinical trials of its product
candidates is dependent upon increased levels of patient enrollment. There can
be no assurance that the Company will obtain patient enrollment in its clinical
trials at the necessary levels. Delays in planned patient enrollment may result
in increased costs, delays or termination of clinical trials, which could have a
material adverse effect on the Company. In addition, the Company relies on third
parties to assist the Company in overseeing and monitoring its clinical trials.
If such third parties fail to perform under their agreements with the Company or
fail to meet regulatory standards in the performance of their obligations under
such agreements, such clinical trials may be delayed or halted. The Company's
reliance on assistance from third parties with respect to its clinical trials is
likely to increase as the Company expands the number and scope of its clinical
trials. Demands on the Company's clinical staff have been increasing and are
expected to continue to increase as a result of the number of product candidates
in clinical trials and the later stage of the clinical trials. There can be no
assurance that the Company will be able to effectively oversee and monitor the
multiple clinical trials that it is conducting and expects to conduct. The
Company's inability to effectively manage multiple concurrent clinical trials
would result in increased costs or delays of the Company's clinical trials.
There can be no assurance that the Company will be able to compile the necessary
data and submit a new drug application (an "NDA") as scheduled even if clinical
trials are completed or that any such application will be reviewed and cleared
by the FDA in a timely manner, or at all.

The Company currently has three product candidates in clinical trials. There
can be no assurance that the Company will be able to complete the clinical
trials successfully, or at all, that other product candidates entering clinical
trials, if any, will successfully complete such trials, or that the Company will
be able to demonstrate the safety and efficacy of such product candidates.
Clinical trial results that show insufficient safety or efficacy would have a
material adverse effect on the Company.

UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS; POSSIBLE PATENT
LITIGATION. The Company's success will depend in part on its ability to obtain
patents, maintain trade secrets and operate without infringing on the
proprietary rights of others, both in the United States and in other countries.
Patent matters in biotechnology, and in particular with respect to receptors as
screening tools and/or the DNA encoding them, are highly uncertain and involve
complex legal and factual questions. Accordingly, the availability of and
breadth of claims allowed in biotechnology and pharmaceutical patents cannot be
predicted. As of September 30, 1997, SUGEN held exclusive rights to at least 12
issued U.S. patents and had filed and/or held exclusive licenses to
approximately 150 United States patent applications, as well as related foreign
patent applications. There can be no assurance that the Company will develop
products or processes that are patentable, that patents will issue from any of
the pending applications, or that claims allowed will be sufficient to protect
the Company's technology. There can be no assurance that the Company's patents,
if issued, will not be challenged, invalidated or circumvented, or that the
rights granted thereunder will provide proprietary protection or competitive
advantages to the Company. Competitors have been issued patents, may have filed
applications or may obtain

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additional patents and proprietary rights relating to products or processes
competitive with those of the Company or which could block the Company's efforts
to obtain patents.

A number of pharmaceutical companies, biotechnology companies, universities
and research institutions have filed patent applications or received patents in
the field of TKs, TPs and STKs and related downstream signalling molecules. The
commercial success of the Company will depend in part on SUGEN not infringing
patents issued to competitors and not breaching the technology licenses upon
which any Company products are based. The Company in the past has been, and from
time to time in the future may be, notified of claims that the Company may be
infringing patents or other intellectual property rights owned by third parties.
Certain patent applications or patents of the Company's competitors may conflict
with the Company's patents and patent applications, and SUGEN is aware that
other companies have filed patent applications and have been granted patents in
the United States and other countries claiming subject matter potentially useful
or necessary to the Company. Such conflicts could result in a significant
reduction in the scope of the coverage of the Company's issued or licensed
patents. In addition, if patents are issued to other companies which contain
competitive or conflicting claims and such claims are ultimately determined to
be valid, the Company may be required to obtain licenses to these patents or to
develop or obtain alternative technology. If any licenses are required, there
can be no assurance that the Company will be able to obtain any such license on
commercially favorable terms, if at all, and if these licenses are not obtained,
the Company might be prevented from pursuing the development of certain of its
potential products. The Company's breach of an existing license or failure to
obtain a license to any technology that it may require to commercialize its
products may have a material adverse impact on the Company. Litigation, which
could result in substantial costs to the Company, may also be necessary to
enforce any patents issued or licensed to the Company or to determine the scope
and validity of third-party proprietary rights. There can be no assurance that
the Company's issued or licensed patents would be held valid by a court of
competent jurisdiction. Even if the outcome of such litigation is favorable, the
cost of such litigation and the diversion of the Company's management resources
during such litigation could have a material adverse effect on the Company. An
adverse outcome could subject the Company to significant liabilities to third
parties, require disputed rights to be licensed from third parties or require
the Company to cease using such technology, any of which could have a material
adverse effect on the Company. If competitors of the Company prepare and file
patent applications in the United States that claim technology also claimed by
the Company, the Company may have to participate in interference proceedings
declared by the Patent and Trademark Office to determine priority of invention,
which could result in substantial cost to the Company, even if the eventual
outcome is favorable to the Company. When patents issue in certain areas such as
Japan and the European community, third parties can oppose such issuance. Should
the relevant patent office institute a proceeding termed an opposition, the
Company may decide to defend its patent. There can be no assurance that the
Company will be successful or that the patent office will not revoke the patent
or alter the scope of protection previously granted.

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However, the Company has learned that additional patents have issued in the
United States to the pharmaceutical company covering the use of leflunomide and
structurally related compounds for the treatment of named cancers. The Company
presently does not know if commercialization of SU101 will infringe these
additional patents but believes that the additional patents may be subject to
claims of invalidity as they relate to SU101. If the additional patents were
determined to be valid with respect to SU101, the Company may be required to
obtain a license from the pharmaceutical company in order to manufacture and
sell SU101 in the United States. There can be no assurance that SU101 will not
infringe the recently issued patents, that the term of the pharmaceutical
company's other existing patents will not be extended, that the claims of the
pharmaceutical company's pending patent applications will not be modified prior
to issuance so as to enhance their validity or scope, or that a court will agree
with the Company's beliefs regarding invalidity and non-infringement of the
patents. To date, the pharmaceutical company has not threatened or commenced
legal proceedings against the Company concerning possible patent infringement.
There can be no assurance that the pharmaceutical company in the future will not
assert claims against SUGEN or that the Company could reach agreement with the
pharmaceutical company for a license for SU101 upon favorable terms or at all,
if required. The inability of the Company to resolve this matter on favorable
terms or at all could have a material adverse effect on the Company. In any
event, the assertion of any such claims, even if resolved favorably to the
Company, could result in substantial costs to the Company.

The Company is currently evaluating the potential commercialization of SU101
outside the United States. The scope, term and validity of the pharmaceutical
company's patent protection outside the United States is different than the
situation in the United States, and the Company's ability to manufacture and
sell SU101 outside the United States may be adversely impacted by this patent
protection.

SUGEN also relies on trade secrets to protect technology, especially where
patent protection is not believed to be appropriate or obtainable. SUGEN
attempts to protect its proprietary technology and processes in part by
confidentiality agreements with its employees, consultants and certain
contractors. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors. To the extent that the Company or its consultants or
research collaborators use intellectual property owned by others in their work
for the Company, disputes may also arise as to the rights in related or
resulting know-how and inventions.

GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY CLEARANCE. The Company's
ongoing research and development activities and the manufacturing and marketing
of the Company's product candidates are subject to extensive regulation by
numerous governmental authorities in the United States and other countries.
Failure to comply with applicable FDA or other regulatory requirements may
result in criminal prosecution, civil penalties, recall or seizure of products,
total or partial suspension of production or injunction, as well as other
regulatory action against the Company or its potential products.

Prior to marketing in the United States, any drug developed by the Company
must undergo rigorous preclinical studies and clinical trials and an extensive
regulatory clearance process implemented by the FDA under the federal Food, Drug
and Cosmetic Act. Satisfaction of such regulatory requirements, which includes
satisfying the FDA that the product is both safe and effective, typically takes
several years or more depending upon the type, complexity and novelty of the
product and requires the expenditure of substantial resources. The Company is
focusing its initial development efforts related to SU101 on malignant glioma
and selected other solid tumor patient populations with very poor prognoses.
Given the poor prognoses for these patients, the Company believes that FDA
approval could potentially be obtained based on smaller-scale clinical trials
than are typically required for approval of NDAs. There can be no assurance,
however, that the Company will be able to rely on smaller-scale clinical trials
to expedite the commercialization of SU101 for these patient populations.

Preclinical studies must be conducted in conformance with the FDA's good
laboratory practice ("GLP") regulations. Before commencing clinical trials, the
Company must submit to and receive approval from the FDA of an Investigational
New Drug application (an "IND"). There can be no assurance that submission of an
IND

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would result in FDA authorization to commence clinical trials. Clinical trials
must meet requirements for institutional review board oversight, informed
consent and good clinical practice requirements and is subject to continuing FDA
oversight. The Company does not have extensive experience in conducting and
managing the clinical testing necessary to obtain regulatory approval. Clinical
trials may require large numbers of test subjects. Furthermore, the Company or
the FDA may suspend clinical trials at any time if they believe that the
subjects participating in such trials are being exposed to unacceptable health
risks or if the FDA finds deficiencies in the IND or the conduct of the trials.

Before receiving FDA clearance to market a product, the Company will have to
demonstrate that the product is safe and effective on the patient population
that will be treated. Data obtained from preclinical studies and clinical trials
are susceptible to varying interpretations which could delay, limit or prevent
regulatory clearances. In addition, delays or rejections may be encountered
based upon additional government regulation from future legislation or
administrative action or changes in FDA policy during the period of product
development, clinical trials and FDA regulatory review. Similar delays also may
be encountered in foreign countries. There can be no assurance that even after
such time and expenditures regulatory clearance will be obtained for any
products developed by the Company. If regulatory clearance of a product is
granted, such clearance will be limited to those disease states and conditions
for which the product is useful, as demonstrated through clinical trials.
Marketing or promoting a drug for an unapproved indication is prohibited.
Furthermore, clearance may entail ongoing requirements for postmarketing
studies. Even if such regulatory clearance is obtained, a marketed product, its
manufacturer and its manufacturing facilities are subject to continual review
and periodic inspections by the FDA. Discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on such
product or manufacturer, including costly recalls or even withdrawal of the
product from the market. There can be no assurance that any compound developed
by the Company alone or in conjunction with others will prove to be safe and
efficacious in clinical trials and will meet all of the applicable regulatory
requirements needed to receive marketing clearance.

Manufacturers of drugs and biologics also are required to comply with the
applicable FDA good manufacturing practice ("GMP") regulations, which include
requirements relating to quality control and quality assurance as well as the
corresponding maintenance of records and documentation. Manufacturing facilities
are subject to inspection by the FDA, including unannounced inspection, and must
be licensed before they can be used in commercial manufacturing of the Company's
products. There can be no assurance that the Company or its suppliers will be
able to comply with the applicable GMP regulations and other FDA regulatory
requirements. Such failure could have a material adverse effect on the Company.

The Company may elect to seek approval of SU101 under the Clinton-Kessler
Cancer Initiative. Significant uncertainty exists as to the extent to which such
initiative will result in accelerated review and approval. Further, the FDA has
not made available comprehensive guidelines with respect to this initiative,
retains considerable discretion to determine eligibility for accelerated review
and approval and is not bound by discussions that an applicant may have had with
FDA staff. Accordingly, the FDA could employ such discretion to deny eligibility
of SU101 as a candidate for accelerated review or to require additional clinical
trials or other information before approving SU101. A determination that SU101
is not eligible for accelerated review or delays and additional expenses
associated with generating a response to any such request for additional trials
could have a material adverse effect on the Company.

Outside the United States, the Company's ability to market a product is
contingent upon receiving a marketing authorization from the appropriate
regulatory authorities. The requirements governing the conduct of clinical
trials, marketing authorization, pricing and reimbursement vary widely from
country to country. At present, foreign marketing authorizations are applied for
at a national level, although within the European Community ("EC") certain
registration procedures are available to companies wishing to market a product
in more than one EC member state. If the regulatory authority is satisfied that
adequate evidence of safety, quality and efficacy has been presented, a
marketing authorization will be granted. This foreign regulatory approval
process includes all of the risks associated with FDA clearance set forth above.

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INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE. SUGEN is engaged in a
rapidly changing field. Other products and therapies that will compete directly
with the products that the Company is seeking to develop and market currently
exist or are being developed. Competition from fully integrated pharmaceutical
companies and more established biotechnology companies is intense and is
expected to increase. Most of these companies have significantly greater
financial resources and expertise in research and development, manufacturing,
conducting preclinical studies and clinical trials, obtaining regulatory
approvals and marketing than the Company. Many of these competitors have
significant products that have been approved or are in development and operate
large, well-funded research and development programs. For example, monoclonal
antibodies targeting Her2, including one developed by Dr. Ullrich, are currently
in clinical trials by others for certain cancers. Smaller companies may also
prove to be significant competitors, particularly through collaborative
arrangements with large pharmaceutical and established biotechnology companies.
Academic institutions, governmental agencies and other public and private
research organizations also conduct research, seek patent protection and
establish collaborative arrangements for products and clinical development and
marketing. These companies and institutions compete with the Company in
recruiting and retaining highly qualified scientific and management personnel.
Competition may also arise from companies pursuing differing technological
approaches to cancers and other disease indications targeted by the Company's
product candidates. In addition to the above factors, SUGEN will face
competition based on product efficacy and safety, the timing and scope of
regulatory approvals, availability of supply, marketing and sales capability,
reimbursement coverage, price and patent position. There is intense competition
for access to and use of libraries of compounds to use for screening and any
inability of the Company to maintain access to sufficiently broad libraries of
compounds for screening potential targets would have a material adverse effect
on the Company. There is no assurance that the Company's competitors will not
develop more effective or more affordable products, compete more effectively for
corporate partnerships or achieve earlier patent protection or product
commercialization than the Company.

NEED TO ATTRACT AND RETAIN KEY OFFICERS, EMPLOYEES AND CONSULTANTS. The
Company is highly dependent on key members of its scientific and management
staff, the loss of whose services might significantly delay or prevent the
achievement of research, development or business objectives. The Company does
not maintain "key person" life insurance on the lives of any officer, employee
or consultant of the Company. In addition, the Company relies on consultants and
advisors, including the members of its Science Advisory Board and Clinical
Advisory Board, to assist the Company in formulating its research and
development strategy. Retaining and attracting qualified personnel, consultants
and advisors is critical to the Company's success. In order to pursue its
product development and marketing plans, the Company will be required to hire
additional qualified scientific personnel to perform research and development,
as well as personnel with expertise in conducting clinical trials, government
regulation, manufacturing and marketing. These requirements are also expected to
demand the attention of management personnel and the development of additional
expertise by existing management personnel. The Company faces intense
competition for qualified individuals from numerous pharmaceutical and
biotechnology companies, universities and other research institutions. There can
be no assurance that the Company will be able to attract and retain such
individuals on acceptable terms, if at all, and the failure to do so would have
a material adverse effect on the Company.

POTENTIAL VOLATILITY OF STOCK PRICE. The Common Stock currently trades on
the Nasdaq National Market. The securities markets have from time to time
experienced significant price and volume fluctuations that may be unrelated to
the operating performance of particular companies. In addition, the market price
of the Common Stock, like that of the common stock of many other early-stage
biotechnology companies, has been, and can in the future be expected to be,
highly volatile. Factors such as the fluctuation in the Company's operating
results, announcements of technological innovations or new commercial products
by the Company or its competitors, progress with clinical trials, governmental
regulation, changes in reimbursement policies, developments in patent or other
proprietary rights of the Company or its competitors, including litigation,
developments in the Company's relationships with current or any future
collaborative partners, public concern as to the safety and efficacy of drugs
developed by the Company and its competitors, changes in securities analysts'
recommendations and general market conditions may have a significant effect on
the market price of the Common Stock.

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LACK OF MANUFACTURING EXPERIENCE; RELIANCE ON CONTRACT MANUFACTURERS. The
Company has no manufacturing facilities and relies on other manufacturers to
produce its compounds for research and development, preclinical studies and
clinical trials. The products under development by the Company have never been
manufactured for large-scale clinical trials or commercial purposes, and there
can be no assurance that such products can be manufactured at a cost or in
quantities necessary for large-scale clinical trials or to make them
commercially viable. Any change in the Company's existing relationships with, or
interruption in supply from, its manufacturers of the compounds used in its
clinical trials could affect adversely the Company's ability to complete its
ongoing clinical trials and to market its product candidates, if approved. Any
such change or interruption may have a material adverse effect on the Company.
In the event of a change in the supplier of a compound used in its clinical
trials, the Company would be required to collect data from its ongoing clinical
trials with respect to a compound and file such data with the FDA to establish
clinical comparability between the compound as produced by different suppliers.
There can be no assurance that the Company would be able to establish such
clinical comparability. A failure to establish clinical comparability could lead
to a requirement that the Company enlarge the size of an ongoing clinical trial,
which would delay the completion of such trial, increase its cost and
potentially delay the Company's pursuit of regulatory approval for a product
candidate. If the Company were unable to contract for a sufficient supply of its
compounds on acceptable terms, or if it should encounter delays or difficulties
in its relationships with manufacturers, the Company's preclinical studies and
clinical trial schedule would be delayed, resulting in a delay in the submission
of products for regulatory approval or the market introduction and subsequent
sale of such products, which could have a material adverse effect on the
Company. Moreover, contract manufacturers that the Company may use must adhere
to current GMP regulations enforced by the FDA through its facilities inspection
program. If these facilities cannot pass a pre-approval plant inspection, the
FDA pre-market approval of the products will not be granted. See "--Government
Regulation; No Assurance of Regulatory Clearance," and
"Business--Manufacturing."

LACK OF MARKETING AND SALES EXPERIENCE; DEPENDENCE ON THIRD PARTIES. The
Company currently has no marketing, sales or distribution capability. The
Company intends to build a dedicated sales force in oncology and to rely on
relationships with one or more pharmaceutical companies with established
distribution systems and direct sales forces to market products outside of
cancer. To market any of its products directly, the Company must develop a
marketing and sales force with technical expertise and with supporting
distribution capabilities. There can be no assurance that the Company will be
able to establish in-house marketing, sales and distribution capabilities or
relationships with third parties. To the extent that the Company enters into
co-promotion or other licensing arrangements, any revenues received by the
Company will depend upon the efforts of third parties, and there can be no
assurance that such efforts will be successful.

NO ASSURANCE OF MARKET ACCEPTANCE. There can be no assurance that, if
approved for marketing, any of the Company's products under development will
achieve market acceptance. The degree of market acceptance will depend upon a
number of factors, including the receipt of regulatory approvals, the
establishment and demonstration in the medical community of the clinical
efficacy and safety of the Company's product candidates and their potential
advantages over existing treatment methods, and pricing and reimbursement
policies of government and third-party payors. There is no assurance that
physicians, patients, payors or the medical community in general will accept and
utilize any products that may be developed by the Company.

UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT. The business and
financial condition of pharmaceutical and biotechnology companies will continue
to be affected by the efforts of governmental and third-party payors to contain
or reduce the cost of health care. In certain foreign markets, pricing or
profitability of prescription pharmaceuticals is subject to governmental
control. In the United States there have been, and the Company expects that
there will continue to be, a number of federal and state proposals to implement
similar government control. In addition, a heightened emphasis on managed care
in the United States has increased and will continue to increase the pressure on
pharmaceutical pricing. While the Company cannot predict whether any such
legislative or regulatory proposals will be adopted or the effect such proposals
or managed care efforts may have on its business, the announcement of such
proposals or efforts could have a material adverse effect on the Company's
ability to raise capital, and the adoption of such proposals or efforts

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could have a material adverse effect on the Company's business and financial
condition. Further, to the extent that such proposals or efforts have a material
adverse effect on other pharmaceutical companies that are prospective corporate
partners for the Company, the Company's ability to establish a strategic
collaboration may be adversely affected. In addition, in both domestic and
foreign markets, sales of the Company's proposed products will depend in part on
the availability of reimbursement from third-party payors such as government
health administration authorities, private health insurers and other
organizations. Third-party payors are increasingly challenging the price and
cost-effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
There can be no assurance that the Company's proposed products will be
considered cost effective or that adequate third-party reimbursement will be
available to enable the Company to maintain price levels sufficient to realize
an appropriate return on its investment in product development.

PRODUCT LIABILITY EXPOSURE; UNCERTAINTY OF INSURANCE AVAILABILITY. The use
of any of the Company's potential products in clinical trials, and the sale of
any approved products, may expose the Company to liability claims resulting from
the use of its products. These claims might be made directly by consumers,
health care providers or pharmaceutical companies or others selling such
products. SUGEN has obtained limited product liability insurance coverage for
its clinical trials. However, insurance coverage is becoming increasingly
expensive, and no assurance can be given that the Company will be able to
maintain insurance coverage at a reasonable cost or in sufficient amounts to
protect the Company against losses due to liability. There can also be no
assurance that the Company will be able to obtain commercially reasonable
product liability insurance for any product approved for marketing. A successful
product liability claim or series of claims against the Company could have a
material adverse effect on the Company.

HAZARDOUS MATERIALS. The Company's research and development involves the
controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company. The Company may incur
substantial costs to comply with environmental regulations if the Company
develops manufacturing capacity.

ANTI-TAKEOVER PROVISIONS. The Company's Certificate of Incorporation and
Bylaws require that any action required or permitted to be taken by stockholders
of the Company must be effected at a duly called annual or special meeting of
stockholders and may not be effected by written consent. Special meetings of the
stockholders of the Company may be called only by the Board of Directors, the
Chairman of the Board or the Chief Executive Officer of the Company. These and
other charter provisions may discourage certain types of transactions involving
an actual or potential change in control of the Company, including transactions
in which the stockholders might otherwise receive a premium for their shares
over then current prices, and may limit the ability of the stockholders to
approve transactions they may deem to be in their best interests. The Board of
Directors also has the authority, without action by the stockholders, to fix the
rights and preferences of and issue shares of Preferred Stock, which may have
the effect of delaying or preventing a change in control of the Company. In
addition, the Board of Directors has adopted a Preferred Share Purchase Rights
Plan (commonly known as a "poison pill"), and the Company's research
collaboration with Zeneca permits Zeneca to terminate the arrangement if a third
party acquires 35% or more of SUGEN's voting stock. These provisions also may
have the effect of delaying or preventing a change in control of the Company.

SHARES ELIGIBLE FOR FUTURE SALE. Substantially all of the Company's shares
are eligible for sale in the public market. The issuance of Common Stock upon
the exercise of stock options and warrants, as well as future sales of such
Common Stock or of shares of Common Stock by existing stockholders, or the
perception that such sales could occur, could adversely affect the market price
of the Common Stock. In addition, in September 1997, the Company completed the
sale of the Notes. In connection with such sale, the Company was required to
register for resale by the holders thereof up to 1,780,000 shares of Common
Stock that may be issued upon conversion of

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the Notes, in payment of interest on the Notes (at the Company's option) and
upon exercise of warrants issued in connection with the sale of the Notes (based
on the conversion price as would have been in effect on the date of the filing
of the registration statement with respect to the resale). Beginning on December
11, 1997, the Notes may be converted, together with unpaid interest, into such
shares of Common Stock. Such shares will be freely tradeable. The Company,
subject to certain exceptions, and its officers, directors and certain
stockholders holding an aggregate of approximately 6,125,930 shares of Common
Stock have agreed not to sell or otherwise dispose of any shares of Common Stock
during the 90-day period following the effective date of the registration
statement without consent of Hambrecht & Quist LLC on behalf of the
Underwriters. Hambrecht & Quist LLC, in its sole discretion, may permit such
sales during such period without public announcement.

FORWARD LOOKING STATEMENTS

This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 which are subject to the "safe harbor" created by those
sections. These forward-looking statements include, but are not limited to,
statements concerning the Company's plans to: continue development of its
current product candidates; conduct clinical trials with respect to SU101 and
other product candidates; utilize the Company's capital resources and the net
proceeds from this Offering and the time periods related thereto; seek
regulatory approvals; engage third-party manufacturers to supply its clinical
trials and commercial requirements; establish a marketing, sales and
distribution capability; and evaluate additional product candidates for
subsequent clinical and commercial development. These forward-looking statements
may be found in the "Prospectus Summary," "Risk Factors," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Forward-looking statements not specifically set
forth above may also be found in these and other sections of this Prospectus.
Actual results could differ materially from those discussed in the
forward-looking statements as a result of certain factors, including those
discussed in "Risk Factors" and elsewhere in this Prospectus.

16
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of 2,000,000 shares of Common
Stock offered hereby are estimated to be approximately $29.7 million at a public
offering price of $16.00 per share and after deducting the estimated offering
expenses ($34.2 million if the Underwriters' over-allotment option is exercised
in full). The Company expects to use the net proceeds from the Offering for
research and development activities, including preclinical studies and clinical
trials, and for general corporate purposes, including working capital. The
Company estimates that its existing capital resources, after giving effect to
the net proceeds from the Offering, together with facility and equipment
financing, expected revenues from current collaborations and net income from
investment activities, will be sufficient to fund its planned operations into
2000. Pending their use, the Company intends to invest the net proceeds of this
Offering in interest bearing, investment grade securities. See "Risk
Factors--Future Capital Needs; Uncertainty of Additional Funding" and "--History
of Operating Losses; Accumulated Deficit."

A portion of the proceeds also may be used to acquire or invest in
complementary businesses, products or technologies. From time to time, the
Company evaluates potential acquisitions of, or investments in, such businesses,
products or technologies in the ordinary course of business. Currently, the
Company is considering modest investments in such complementary businesses.

PRICE RANGE OF COMMON STOCK

The Common Stock commenced trading publicly on the Nasdaq National Market on
October 4, 1994 and is traded under the symbol SUGN. Prior to that date, there
was no public market for the Common Stock. The following table sets forth for
the periods indicated the high and low sales prices of the Common Stock:

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995
First Quarter.................................................................................. $ 7.75 $ 4.63
Second Quarter................................................................................. 8.38 4.63
Third Quarter.................................................................................. 13.88 6.88
Fourth Quarter................................................................................. 16.00 9.25
1996
First Quarter.................................................................................. $ 15.88 $ 11.75
Second Quarter................................................................................. 15.25 11.25
Third Quarter.................................................................................. 12.75 9.38
Fourth Quarter................................................................................. 14.50 11.25
1997
First Quarter.................................................................................. $ 15.25 $ 9.88
Second Quarter................................................................................. 13.25 10.00
Third Quarter.................................................................................. 20.94 11.88
Fourth Quarter (through November 6, 1997)...................................................... 21.13 15.00
</TABLE>

As of November 6, 1997, there were 229 holders of record of the Common
Stock. On November 6, 1997, the last sales price reported on the Nasdaq National
Market for the Common Stock was $16.13 per share. See "Risk Factors--Potential
Volatility of Stock Price."

DIVIDEND POLICY

The Company has not declared or paid any cash dividends on its capital
stock. The Company anticipates that it will retain all future earnings for use
in its business and does not anticipate paying any cash dividends in the
foreseeable future.

17
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1997 (i) on an actual basis, (ii) on a pro forma basis giving effect to the
issuance of the Notes as if such issuance had occurred on June 30, 1997,
including the issuance of warrants to purchase a total of 332,500 shares of
Common Stock at an exercise price of $16.74 per share and (iii) pro forma as
adjusted for the sale by the Company of the 2,000,000 shares of Common Stock
offered hereby at a public offering price of $16.00 per share and the
application of the net proceeds therefrom. This table should be read in
conjunction with the Financial Statements of the Company and the Notes thereto
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Senior Custom Convertible Notes due 2000.................... $ -- $ 17,500 $ 17,500
Capital lease obligations--non-current portion.............. 3,226 3,226 3,226
--------- ----------- -----------
Stockholders' equity:
Preferred Stock, $.01 par value; 20,000,000 shares
authorized, issuable in series; 300,000 shares
designated as Series A Junior Participating Preferred
Stock; none issued and outstanding.................... -- -- --
Common Stock, $.01 par value; 30,000,000 shares
authorized; 13,117,854 shares issued and outstanding,
actual and pro forma; and 15,117,854 shares issued and
outstanding, pro forma as adjusted(1)................. 131 131 151
Additional paid-in capital.............................. 108,569 110,030 139,670
Deferred compensation................................... (560) (560) (560)
Note receivable from stockholder........................ (883) (883) (883)
Accumulated deficit..................................... (73,615) (73,615) (73,615)
--------- ----------- -----------
Total stockholders' equity............................ 33,642 35,103 64,763
--------- ----------- -----------
Total capitalization.............................. $ 36,868 $ 55,829 $ 85,489
--------- ----------- -----------
--------- ----------- -----------
</TABLE>

- ------------------------

(1) Excludes, as of June 30, 1997, an aggregate of 3,091,031 shares of Common
Stock consisting of the following: 2,475,603 shares of Common Stock reserved
for issuance pursuant to the Company's stock option plans, pursuant to which
options to purchase 1,927,203 shares with a weighted average exercise price
of $9.06 per share were outstanding as of June 30, 1997; 503,644 shares of
Common Stock issuable pursuant to warrants with a weighted average exercise
price of $12.86 per share; and 111,784 shares of Common Stock reserved for
issuance under the Company's Employee Stock Purchase Plan. Subsequent to
June 30, 1997, (i) the Company issued 122,132 shares of Common Stock to
employees upon the exercise of stock options outstanding prior to June 30,
1997 and pursuant to an employee stock grant; 26,241 shares of Common Stock
to employees under the Company's Employee Stock Purchase Plan; the Notes,
which are convertible into 1,142,857 shares of Common Stock, assuming a
conversion price of $15.31 per share; and warrants to acquire 332,500 shares
of Common Stock at an exercise price of $16.74 per share and (ii) a warrant
to purchase 133,333 shares of Common Stock expired without exercise.

18
<PAGE>
DILUTION

The net tangible book value of the Company at June 30, 1997 was
approximately $33.6 million, or $2.56 per share. Net tangible book value per
share represents the amount of the Company's total tangible assets less total
liabilities, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale by the Company of 2,000,000 shares of Common Stock
offered hereby (at a public offering price of $16.00 per share), the pro forma
net tangible book value of the Company at June 30, 1997 would have been
approximately $63.3 million, or $4.19 per share. This represents an immediate
increase in such net tangible book value of $1.63 per share to existing
stockholders and an immediate dilution of $11.81 per share to new investors. The
following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed public offering price per share.................................. $ 16.00
Net tangible book value per share before the Offering.................. $ 2.56
Increase per share attributable to new investors....................... 1.63
---------
Pro forma net tangible book value per share after the Offering........... 4.19
---------
Dilution per share to new investors...................................... $ 11.81
---------
---------
</TABLE>

The preceding table assumes no conversion of the Notes. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Recent
Operating Results and Developments."

19
<PAGE>
SELECTED FINANCIAL DATA

The selected financial data set forth below with respect to SUGEN's
statements of operations for each of the three years in the period ended
December 31, 1996 and balance sheet data at December 31, 1995 and 1996, are
derived from the Financial Statements of SUGEN that have been audited by Ernst &
Young LLP, independent auditors, which are included elsewhere herein and are
qualified by reference to such Financial Statements and the Notes related
thereto. The statement of operations data for the years ended December 31, 1992
and 1993 and the balance sheet data as of December 31, 1992, 1993 and 1994 are
derived from financial statements audited by Ernst & Young LLP not included in
this Prospectus. The balance sheet data at June 30, 1997 and the statement of
operations data for each of the six-month periods ended June 30, 1996 and 1997
are derived from unaudited financial statements included elsewhere herein. The
unaudited financial statements, in the opinion of management of the Company,
reflect all adjustments, consisting only of normal recurring adjustments, that
the Company considers necessary for a fair presentation of the financial
position and results of operations for these periods. Operating results for the
six months ended June 30, 1997 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 1997. The data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
the Notes related thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------------- --------------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Contract revenue.................... $ 1,080 $ 5,470 $ 6,270 $ 13,843 $ 13,650 $ 7,908 $ 2,971
Costs and expenses:
Research and development........ 4,531 10,251 17,079 23,226 29,792 14,332 16,576
General and administrative...... 1,591 2,169 3,106 5,086 5,529 2,967 2,990
--------- --------- --------- --------- --------- ------------- -----------
Total costs and expenses.... 6,122 12,420 20,185 28,312 35,321 17,299 19,566
--------- --------- --------- --------- --------- ------------- -----------
Operating loss...................... (5,042) (6,950) (13,915) (14,469) (21,671) (9,391) (16,595)
Other income and expense:
Interest income................. 131 339 529 1,988 2,481 1,288 1,303
Interest expense................ (45) (56) (278) (494) (691) (354) (344)
Gain on sale of investment in
Selectide Corporation......... -- -- -- 1,006 -- -- --
--------- --------- --------- --------- --------- ------------- -----------
Other income, net........... 86 283 251 2,500 1,790 934 959
--------- --------- --------- --------- --------- ------------- -----------
Net loss............................ $ (4,956) $ (6,667) $ (13,664) $ (11,969) $ (19,881) $ (8,457) $ (15,636)
--------- --------- --------- --------- --------- ------------- -----------
--------- --------- --------- --------- --------- ------------- -----------
Net loss per share.................. $ (3.00) $ (3.89) $ (4.15) $ (1.32) $ (1.81) $ (0.81) $ (1.20)
--------- --------- --------- --------- --------- ------------- -----------
--------- --------- --------- --------- --------- ------------- -----------
Shares used in computing net loss
per share......................... 1,649 1,712 3,296 9,085 10,966 10,486 13,050
--------- --------- --------- --------- --------- ------------- -----------
--------- --------- --------- --------- --------- ------------- -----------
Pro forma net loss per share(1)..... $ (1.37) $ (1.39) $ (2.22)
--------- --------- ---------
--------- --------- ---------
Shares used in computing pro forma
net loss per share(1)............. 3,618 4,786 6,143
--------- --------- ---------
--------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments............ $ 12,315 $ 16,984 $ 22,414 $ 53,253 $ 56,334 $ 42,864
Total assets........................ 15,306 20,812 28,455 59,243 61,936 48,713
Capital lease
obligations--non-current
portion........................... 291 441 2,087 3,651 2,938 3,226
Accumulated deficit................. (5,784) (12,451) (26,720) (37,964) (57,997) (73,615)
Total stockholders' equity.......... 11,127 13,230 18,319 43,441 48,530 33,642
</TABLE>

- ------------------------------

(1) Pro forma net loss per share information gives effect to the conversion of
all Preferred Stock outstanding from the date of issuance. See Note 1 of
Notes to Financial Statements.

20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND NOTES
THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. EXCEPT FOR THE HISTORICAL
INFORMATION CONTAINED HEREIN, THE DISCUSSION IN THIS PROSPECTUS CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF THE COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE
CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE
TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS
PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE THOSE DISCUSSED IN "RISK FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE
HEREIN.

OVERVIEW

SUGEN was founded in July 1991 to discover and develop new classes of small
molecule drugs which target specific cellular signal transduction pathways.
These signalling pathways are involved in a variety of chronic and acute
pathological diseases, including cancer and diabetes as well as in dermatologic,
ophthalmic, neurologic and immune disorders. The Company's most advanced product
candidate is SU101, a PDGF TK signalling antagonist. The Company is in the
process of completing the data analysis on a Phase II clinical trial for use of
SU101 as a treatment for refractory malignant glioma and currently expects to
initiate a Phase III clinical trial in this indication in late 1997, subject to
FDA review of the planned trial design. A Phase II study of SU101 in combination
with BCNU, the chemotherapy drug that is part of the standard treatment regimen
in newly diagnosed brain cancer patients, was initiated recently, and the
Company currently expects to initiate a Phase II clinical trial of SU101 in
hormone refractory prostate cancer by the end of 1997. To date, over 140
patients have been treated with SU101 in seven Company-sponsored clinical trials
including patients with brain, ovarian, prostate and non-small cell lung
cancers. The Company is also conducting its initial Phase I clinical trial for
its second cancer product candidate, SU5416, a Flk-1/KDR TK antagonist which
inhibits angiogenesis (the process by which blood vessels are formed). In
addition, the Company is conducting a Phase I clinical trial for SU5271, an EGF
TK antagonist, for the treatment of psoriasis. Through June 30, 1997, all of the
Company's revenue has been earned pursuant to collaborations with Zeneca, ASTA
Medica, Allergan and Amgen. The Company intends to pursue its drug discovery
programs independently and in collaboration with established pharmaceutical
companies.

The financial results for the six months ended June 30, 1997 reflect planned
increases in operating expenses necessary for advancing multiple product
candidates through the development process. The Company has not been profitable
since inception and expects to incur substantial losses for the foreseeable
future, primarily due to the expansion of preclinical and clinical development
activities as more of its proprietary cancer-related programs progress toward
and into the clinic. The Company expects that losses will fluctuate from quarter
to quarter and that such fluctuations may be substantial. As of June 30, 1997,
the Company's accumulated deficit was $73.6 million.

RECENT OPERATING RESULTS AND DEVELOPMENTS

The Company's revenues for the third quarter of fiscal 1997 were $1.3
million and its net loss was $8.7 million, or $0.66 per share. These results
compared with revenues of $2.4 million and a net loss of $5.4 million, or $0.51
per share, for the same period in 1996. As of September 30, 1997, the Company
had cash, cash equivalents and short-term investments of approximately $52.1
million.

In November 1997, the Company entered into a commitment for an additional
capital lease line in the amount of $5.0 million for the purchase of equipment
and facilities improvements.

In September 1997, the Company completed the sale of $17.5 million principal
amount of the Notes. The Notes were sold at par, mature on September 12, 2000
and bear interest at a rate of 5% per annum (payable in Common Stock or cash at
the Company's option). Beginning on December 11, 1997, the Notes may be

21
<PAGE>
converted, together with accrued and unpaid interest and subject to certain
limitations, into shares of Common Stock at a conversion price equal to the
average of the two lowest trade prices of the Common Stock during the 20 trading
days immediately preceding the date of conversion (the "Conversion Price").
Beginning January 19, 1998, the Conversion Price may not exceed 115% of the
average closing bid price of the Common Stock for the 20 trading days
immediately preceding such date. In connection with the issuance of the Notes,
the Company issued warrants to purchase up to 332,500 shares of Common Stock at
an exercise price of $16.74 per share. Cash and non-cash issuance costs
(including the fair value of the warrants) totalled approximately $2.6 million
and are recorded as deferred expenses to be amortized to expense over the term
of the Notes. No purchaser of the Notes will be allowed to convert Notes and/or
Warrants which would result in such person owning more than 4.9% of the then
outstanding Common Stock.

Upon the occurrence of certain events, at the election of the holders of the
Notes, the Company may be required to redeem in cash all or a portion of the
Notes at redemption prices which are at a premium to the face value of the
Notes. If the Notes are not converted into Common Stock upon maturity in
September 2000, the Notes will be exchanged for 13.75% five-year debentures.
Pursuant to the terms of the Notes, in addition to other covenants, the Company
has agreed to certain limitations on the incurrence of additional indebtedness.

RESULTS OF OPERATIONS

COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996

CONTRACT REVENUES. The Company's revenues for the six months ended June 30,
1997 were $3.0 million. These results compare to revenues of $7.9 million for
the same period in 1996. Revenues for the six months ended June 30, 1997
included contract revenue from the Allergan and Zeneca collaborations and
contract services revenue earned under the ASTA Medica collaboration for
services provided by ASTA Medica pursuant to the collaboration but on
non-collaboration programs. In 1996, revenues included contract revenues earned
from existing collaborations, set-up fees associated with the ASTA Medica
collaboration and wind-down fees in connection with the termination of the Amgen
collaboration agreement. The Company recognizes revenue from set-up fees and
wind-down fees as the related activities are performed, which is generally over
a twelve-month period or less. Through December 31, 1996, the set-up and
wind-down fees from the ASTA Medica and Amgen collaborations, respectively, had
been fully recognized as revenue. Going forward, the Company will not recognize
any additional revenue under the Amgen collaboration and will recognize
additional revenue under the ASTA Medica collaboration only upon the achievement
of specified milestones and for services provided by ASTA Medica pursuant to the
collaboration but on non-collaboration programs. As a result, 1997 contract
revenue will continue to be lower than 1996 in the absence of additional
collaboration agreements entered into during the current year. The Company is
actively pursuing additional collaborations, but no assurance can be given as to
the ability of the Company to enter such collaborations on a timely basis, or at
all.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $16.6 million for the six months ended June 30, 1997, from $14.3
million for the same period in 1996. The increase during 1997 was primarily due
to higher personnel related costs associated with the expansion of the Company's
research and development programs. In addition, the progression of clinical
trials, including expanded Phase I and Phase II clinical trials of the Company's
lead anti-cancer compound, SU101, and the initiation of clinical trials under
the Company's psoriasis program, contributed to higher expenses during 1997.
Further, the continued advancement of multiple programs through preclinical
development, including costs associated with the Company's June 1997 IND filing
with the FDA for SU5416, an angiogenesis inhibitor, led to higher expenses in
the first six months of 1997. The Company expects that its research and
development expenses will continue to grow in future years due to the hiring of
personnel, additional preclinical studies, the progression of SU101, SU5416 and
other clinical trials, the initiation of new clinical trials on additional drug
candidates, requirements under the Company's anticipated future collaborations
and the expansion of the Company's facilities.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the six months ended June 30, 1997 were $3.0 million, and approximated the
level of spending during the same period in 1996. The

22
<PAGE>
Company expects that its general and administrative expenses will continue to
increase in order to support the Company's research and development efforts.

INTEREST INCOME. Interest income for the six months ended June 30, 1997 was
$1.3 million. The Company earned slightly higher interest income during 1997,
despite the decline in interest rates from the same period in the prior year,
due to higher investment balances arising primarily from issuances of the
Company's capital stock. Interest expense for the six months ended June 30, 1997
was $344,000. For the first half of 1997, interest expense was slightly below
the prior year level primarily due to the scheduled termination of some of the
Company's leases. The Company expects that interest expense will continue to
increase in future years due to the continued use of capital lease financing for
equipment and facility improvements and due to the higher debt associated with
the issuance of the Notes.

COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

CONTRACT REVENUES. The Company's revenues for the years ended December 31,
1996, 1995 and 1994 were $13.7 million, $13.8 million and $6.3 million,
respectively. Revenues for the year ended December 31, 1996 included an upfront
fee and contract revenue from the Allergan collaboration, contract revenue from
the Zeneca collaboration, the recognition of the balance of the $4.0 million
technology set-up fee received in connection with the ASTA Medica collaboration
and the $4.3 million wind-down fee associated with the termination of the Amgen
collaboration. Through December 31, 1996, the set-up and wind-down fees from the
ASTA Medica and Amgen collaborations, respectively, had been fully recognized as
revenue. Revenues for 1995 included the recognition of a $5.0 million
non-recurring technology set-up fee received upon the execution of the
collaboration agreement with Zeneca and the partial recognition of the $4.0
million technology set-up fee received in connection with the ASTA Medica
collaboration. The increase in revenues in 1995 over the preceding year was
primarily due to revenue from the Zeneca collaboration.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for
the years ended December 31, 1996, 1995 and 1994 were $29.8 million, $23.2
million and $17.1 million, respectively. The increase in 1996 was primarily due
to higher personnel related costs associated with the expansion of the Company's
research and development programs. In addition, the progression of clinical
trials, including expanded Phase I studies of the Company's lead anti-cancer
compound, SU101, contributed to higher expenses in 1996. Further, the increased
clinical and preclinical development efforts, including activities associated
with the December 1996 filing of the IND with the FDA for the clinical testing
of SU5271 in the treatment of psoriasis, led to higher expenses in 1996. The
increase in 1995 was also driven by expenses associated with additional
personnel dedicated to the Company's research and development programs. In
addition, the initiation of Phase I clinical trials of SU101 contributed to the
growth in 1995 expenses.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the years ended December 31, 1996, 1995 and 1994 were $5.5 million, $5.1
million and $3.1 million, respectively. The increase in 1996 was primarily due
to additional administrative staffing, related recruiting and relocation
expenses and costs associated with the resignation of an officer. The increase
in 1995 was primarily due to increased administrative staffing, additional costs
incurred in connection with corporate development activities and higher expenses
associated with the Company's reporting requirements as a result of becoming a
publicly held company.

INTEREST INCOME. Interest income for the years ended December 31, 1996,
1995 and 1994 was $2.5 million, $2.0 million and $529,000, respectively. These
increases were due to higher investment balances arising primarily from
issuances of the Company's capital stock. Interest expense for the years ended
December 31, 1996, 1995 and 1994 was $691,000, $494,000 and $278,000,
respectively. These increases were primarily due to the Company's continued use
of capital lease financing for equipment and property improvements related to
the expansion of its facilities. A $1.0 million gain on the sale of the
Company's investment in Selectide Corporation was included in other income
during the twelve month period ended December 31, 1995.

23
<PAGE>
INCOME TAXES. The Tax Reform Act of 1986 contains provisions that limit the
utilization of net operating loss and tax credit carryforwards if there has been
a "change in ownership" as described in Section 382 of the Internal Revenue
Code. The Company believes that such a change in ownership has arisen as a
result of the Company's initial public offering and/or subsequent sales of
securities, including this Offering.

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash, cash equivalents and short-term investments of
approximately $42.9 million at June 30, 1997 compared with approximately $56.3
million and $53.3 million at December 31, 1996 and 1995, respectively. The
decrease in cash, cash equivalents and short-term investments during the six
months ended June 30, 1997 was due primarily to operating losses. The increase
in cash and investments during the year ended December 31, 1996 was primarily
due to the $27.4 million generated from issuances of Common Stock, partially
offset by the net loss for the year, after adjustments for non-cash items and
the repurchase of the Company's Common Stock from Amgen as discussed above.

Through June 30, 1997, the Company's principal sources of financing have
been its initial and follow-on public offerings of Common Stock, placements of
the Company's Preferred and Common Stock and funds received under the Company's
corporate collaborations. Further, in September 1997, the Company completed the
issuance of $17.5 million in Notes, generating net cash proceeds of $16.3
million. The Company's current principal sources of liquidity are its research
and development collaborations with ASTA Medica, Zeneca and Allergan, its cash,
cash equivalents and short-term investments and capital lease financing.

The Company has entered into license and research agreements whereby the
Company funds research projects performed by others or in-licenses compounds
from third parties. Some of the agreements may require the Company to make
milestone and royalty payments. Under these programs, commitments for external
research funding are approximately $2.8 million and $1.9 million in 1997 and
1998, respectively. Most of these commitments are cancelable within a three to
six month period and limit the amounts payable by the Company for sponsored
research under the programs after notice of cancellation by the Company.

From time to time, the Company evaluates potential acquisitions of, or
investments in, complementary businesses, products or technologies. Currently,
the Company is considering modest investments in such complementary businesses.

Net additions of equipment and leasehold improvements for the six months
ended June 30, 1997 and for the years ended December 31, 1996 and 1995 were $1.3
million, $1.7 million and $2.6 million, respectively, which included $1.1
million, $1.3 million and $2.6 million, respectively, of equipment and leasehold
improvements financed through the Company's master lease agreements. In general,
additions for 1996 and 1995 included facility expansion costs, the continued
enhancement of the Company's laboratory capabilities and the costs associated
with the Company's ongoing effort to maintain an up-to-date technology base.
Additions in 1996 and 1995 also included a significant investment in
state-of-the-art computer hardware and software to support the Company's
genomics and bioinformatics programs. Under these capital leases and certain
operating lease arrangements, as of December 31, 1996 the Company had lease
commitments of $8.6 million through 2001. In March 1997, the Company secured an
additional capital lease line in the amount of $3.5 million for the purchase of
equipment and facilities improvements. At June 30, 1997, the Company had $2.6
million available under this line. The Company intends to fund future capital
expenditures principally through lease financing or other debt arrangements,
although there can be no assurance that such financing will be available.

The Company expects that its capital additions and equipment purchases for
1997 will be higher than that of the prior year primarily due to anticipated
facility improvements to its laboratory and office space. In June 1997, the
Company entered into a build-to-suit facility lease agreement. Construction of
the new facility is targeted for completion during the fourth quarter of 1998,
which coincides with the expiration of the Company's current facility leases.
Although the Company has not expended significant amounts to date, the Company
expects to invest in facility improvements and incur move related costs during
1998 as it approaches building

24
<PAGE>
completion. Accordingly, it is expected that the Company's capital lease
obligations and related interest expense as well as its depreciation expense
will increase in future periods.

The Company estimates that its existing capital resources, including the net
proceeds from the issuance of the Notes in September 1997 and after giving
effect to the net proceeds from the Offering, together with facility and
equipment financing, expected revenues from current collaborations and net
income from investment activities, will be sufficient to fund its planned
operations into 2000. However, there can be no assurance that the underlying
assumed levels of revenue and expense will prove accurate. Whether or not these
assumptions prove to be accurate, the Company will need to raise substantial
additional capital to fund its operations. The Company intends to seek such
additional funding through collaborative arrangements, public or private equity
or debt financings and capital lease transactions; however, there can be no
assurance that additional financing will be available on acceptable terms, or at
all. If additional funds are raised by issuing equity securities, further
dilution to stockholders may result. In addition, in the event that additional
funds are obtained through arrangements with collaborative partners or other
partners, such arrangements may require the Company to relinquish rights to
certain of its technologies, product candidates or products that the Company
would otherwise seek to develop or commercialize itself. If adequate funds are
not available, the Company may be required to delay, reduce the scope of or
eliminate one or more of its research or development programs, which could have
a material adverse effect on the Company.

25
<PAGE>
BUSINESS

OVERVIEW

SUGEN is a biopharmaceutical company focused on the discovery and
development of small molecule drugs which target specific cellular signal
transduction pathways. These signalling pathways are regulated by cell-surface
receptors or intracellular signalling molecules known as TKs, TPs and STKs,
three of the largest known families of receptors in the body and key regulators
of critical cellular functions. Aberrant signalling of TKs, TPs and STKs has
been shown to result in a variety of chronic and acute pathological diseases,
including cancer and diabetes as well as in dermatologic, ophthalmic, neurologic
and immune disorders. The Company believes that compounds designed to target
certain kinases and phosphatases and inhibit enzyme activity or prevent the
binding of downstream signalling molecules make attractive therapeutic product
candidates. The Company's research and development efforts in signal
transduction are based upon the pioneering accomplishments of SUGEN's founding
scientists, Dr. Axel Ullrich of MPI and Dr. Joseph Schlessinger of NYU.

SU101, the Company's most advanced product candidate, is a PDGF TK
signalling antagonist. Imbalances in the PDGF TK signalling pathway have been
shown by SUGEN and others to be implicated in certain types of cancers. The
Company is in the process of completing the data analysis on a Phase II clinical
trial for use of SU101 as a treatment for refractory malignant glioma and
currently expects to initiate a Phase III clinical trial in this indication in
late 1997, subject to FDA review of the planned trial design. A Phase II
clinical trial of SU101 in combination with BCNU, the chemotherapy drug that is
part of the standard treatment regimen in newly diagnosed brain cancer patients,
was initiated recently, and the Company currently expects to initiate a Phase II
clinical trial of SU101 in hormone refractory prostate cancer by the end of
1997. To date, over 140 patients have been treated with SU101 in seven
Company-sponsored clinical trials including patients with brain, ovarian,
prostate and non-small cell lung cancers.

SUGEN employs a target-driven approach to drug discovery and development.
The Company believes that the receptors and molecules that play a causative role
in disease states are attractive targets for drug design and development.
SUGEN's drug discovery platform consists of: (1) target identification, using
advanced genomics techniques and the Company's proprietary bioinformatics
program; (2) target validation in relevant IN VIVO disease models; (3) whole
cell or other assay design and target-driven screening of compounds for leads;
and (4) lead optimization using crystallography and computational chemistry. The
Company believes that its drug discovery and development platform may reduce the
cost, time and risk associated with bringing potential products to market by
rationally screening for potent and specific drug leads in the early stages of
discovery and optimizing pharmacologic features in the later stages of drug
development, thereby reducing the incidence and severity of side effects.

26
<PAGE>
partners to fund product development and commercialize its products in Europe
and Asia. This strategy is exemplified by the Company's collaboration with ASTA
Medica for the Pan-Her antagonist program and the Raf antagonist program for the
treatment of certain cancers. ASTA Medica has been granted marketing rights to
these programs in Europe and South America. While the Company generally intends
to retain rights to its cancer programs in North America, SUGEN is funding a
portion of its ongoing cancer research through a collaboration with Zeneca for
the development of five undisclosed cancer targets. Pursuant to its agreement
with Zeneca, the Company will have the opportunity to obtain profit
participation rights in the North American market by contributing to clinical
development costs as incurred and will receive milestone payments and royalties
on worldwide sales.

Outside of oncology, the Company's strategy is to seek corporate
collaborations or joint ventures to which SUGEN contributes validated targets,
screening technologies and drug leads while the partner provides the
disease-specific and drug development expertise as well as marketing experience,
in addition to providing funding to bring potential products to market. As part
of this strategy, the Company entered into a collaboration with Allergan for
angiogenesis inhibition in ophthalmic applications.

OVERVIEW OF CELLULAR SIGNAL TRANSDUCTION PATHWAYS

The last decade of research has led to an increased understanding of how
cells communicate with each other to coordinate the growth and maintenance of
the multitude of tissues within the human body. A key element of this
communication network is the transmission of a signal from the exterior of a
cell to its nucleus, which results in the activation or suppression of specific
genes. This process is called signal transduction. An integral part of signal
transduction is the interaction of ligands, receptors and intracellular signal
transduction molecules ("downstream signalling molecules").

Ligands are chemical messengers, usually released by one cell to communicate
with a target cell by binding to specific receptors on the target cell's
surface. A receptor generally takes the form of a protein that straddles a
cell's membrane, with its "ligand binding domain" protruding out of the cell and
its "intracellular domain" anchored inside the cell. When a ligand binds to its
receptor, the newly formed receptor/ligand complex triggers the activation of a
cascade of downstream signalling molecules, thereby transmitting the message
from the exterior of the cell to its nucleus. When the message is received in
the nucleus, it dictates the activation or suppression of specific genes,
resulting in the production of proteins that carry out a specific biological
response. Depending on the specific ligand, receptor and downstream signalling
molecules, the resulting signalling cascade controls diverse and distinct
cellular processes. For example, metabolic changes can be effected by a ligand
such as insulin which, after binding to the insulin receptor, activates a
specific set of downstream signalling molecules within the cell, ultimately
leading to the regulation of glucose uptake and other insulin-associated
functions.

TYROSINE KINASES, TYROSINE PHOSPHATASES AND SERINE-THREONINE KINASES IN SIGNAL
TRANSDUCTION

Kinases and phosphatases are classes of signalling molecules that are
central to the healthy functioning of all tissues. The Company's research focus
in this area has been on TKs, TPs and selected STKs. At present, there are
approximately 100 known human TKs, including Her2, PDGF TK, insulin receptor
("insulin TK"), EGF TK, macrophage colony stimulating factor receptor and nerve
growth factor receptor, all of which have been cloned over the last seventeen
years. TPs were not discovered until 1988, and at present there are
approximately 50 known human TPs.

Generally, when a ligand binds to receptor TKs, the receptors must dimerize
(join in pairs at the cell surface) to become activated. This coupling activates
a specific enzyme activity which resides within the intracellular domain of each
TK. Upon activation, the TKs commence cross-phosphorylation, a process whereby
phosphates (highly charged particles) are enzymatically added to specific sites
on each of the TKs. These phosphates serve as attachment sites at which specific
downstream signalling molecules interact with the TKs. Many of these downstream
signalling molecules in turn become phosphorylated themselves, enabling them to
recruit their own substrates and thus pass on the signal. Depending on the
specific ligand and receptor, the

27
<PAGE>
resulting signalling cascade leads to changes in gene expression or affects
other cellular systems that ultimately determine if the cell is to grow, mature,
migrate, metabolize or survive.

Complementing TKs are TPs, which were first characterized in detail by Dr.
Edmond H. Fisher, a 1992 Nobel Laureate, SUGEN collaborator and member of
SUGEN's Science Advisory Board. While the TKs phosphorylate target proteins to
exert their activity, the TPs remove phosphates ("dephosphorylate") from target
proteins, thereby regulating the activity of the TKs. Generally, when a receptor
TK is activated by its ligand, a given biologic response is triggered.
Conversely, when a TP is activated, there is usually down regulation of a given
biologic response. In this manner, TKs can be visualized as the "gas pedal" and
TPs as the "brake pedal" for numerous biological processes. Many cellular
responses are thus regulated by the balance between specific TKs and TPs.

The most abundant kinases in the cell are STKs, enzymes which phosphorylate
serine and threonine residues. STKs are involved in controlling the cell cycle,
the response of the cell to environmental stress, the development of certain
cells and tissues, and other processes such as metabolism. Many STKs, for
example, Raf kinases, act downstream in signal transduction cascades initiated
by TKs, while others integrate signals originating from other classes of
receptors, such as G protein-coupled receptors.

DISEASES AND DISORDERS RELATED TO TK, TP AND STK SIGNALLING PATHWAYS

TKs, TPs, STKs and their signalling pathways play key roles in a variety of
normal cellular functions involving virtually every cell type in the body.
Examples include the growth of epithelial cells (skin and lining tissues of
internal organs), angiogenesis, hematopoiesis, proliferation of connective
tissue cells (fibroblasts), survival and differentiation of nerve cells,
regeneration of tissues during wound healing and regulation of the energy
metabolism of all cells. While normal cellular function involves a balance
between kinase and phosphatase activity, imbalances between these molecules have
been shown to result in a variety of chronic and acute pathological conditions,
including cancer and diabetes as well as in dermatologic, ophthalmic, neurologic
and immunologic disorders.

The close association of TKs, TPs and STKs with disease make them attractive
targets for drug discovery and therapeutic intervention. The intracellular
domains where enzymatic activity occurs can be targeted with great selectivity
by drugs that inhibit enzyme activity or that prevent the binding of downstream
signalling molecules to the phosphorylated receptor. Critical points further
downstream in the signalling cascade may also be viable targets since selective
intervention at these points can prevent the message from reaching its final
destination in the nucleus.

PRODUCT DEVELOPMENT PROGRAMS

TKs, TPs, STKs and their biological signalling pathways are implicated in a
broad number of diseases. SUGEN focuses its product development efforts on those
areas which represent significant market opportunities and for which the disease
processes and signalling pathways are well understood. The Company has several
novel product candidates in various stages of development for disease areas in
which there is a critical need for major advances in efficacy and safety over
currently available therapies. These diseases include cancer as well as
diabetes, psoriasis and cardiovascular, immunologic and neurologic disorders.
The Company is in the process of completing the data analysis on a Phase II
clinical trial for use of SU101 as a treatment for refractory malignant glioma
and currently expects to initiate a Phase III clinical trial in this indication
in late 1997, subject to FDA review of the planned trial design. A Phase II
study of SU101 in combination with BCNU, the chemotherapy drug that is part of
the standard treatment regimen in newly diagnosed brain cancer patients, was
initiated recently, and the Company currently expects to initiate a Phase II
clinical trial of SU101 in hormone refractory prostate cancer by the end of
1997. The Company is also conducting its initial Phase I clinical trial for its
second cancer product candidate, SU5416, a Flk-1/KDR TK antagonist which
inhibits angiogenesis.

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The following table outlines SUGEN's development and research programs which
are being pursued either independently by SUGEN or in collaboration with the
Company's partners:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PROGRAM INDICATION(S) STATUS(1) RIGHTS
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
CANCER
- ------------------------------------------------------------------------------------------------------------------------
SU101 Refractory malignant glioma Initiating Phase III SUGEN
PDGF TK Antagonist -Monotherapy
Newly diagnosed malignant Phase II SUGEN
glioma
-Combination therapy
Prostate cancer Initiating Phase II SUGEN
Ovarian and non-small cell Phase I/II SUGEN
lung cancers
- ------------------------------------------------------------------------------------------------------------------------
SU5416 Angiogenesis inhibition Phase I SUGEN
Flk-1/KDR TK Antagonist -Most solid tumor types
- ------------------------------------------------------------------------------------------------------------------------
Raf Antagonist Pancreatic, bladder cancers Lead compounds ASTA Medica
Europe and South America
SUGEN
United States and rest of
world
- ------------------------------------------------------------------------------------------------------------------------
Orally available PDGF TK Malignant glioma, prostate, Lead compounds SUGEN
Antagonists ovarian and non-small cell
lung cancers
- ------------------------------------------------------------------------------------------------------------------------
Pan-Her Antagonist (formerly Breast, ovarian, gastric, Lead compounds ASTA Medica
Her2 Antagonist) lung, head and neck, prostate Europe and South America
cancers SUGEN
United States and rest of
world
- ------------------------------------------------------------------------------------------------------------------------
GRB2 Antagonist Multiple TK-driven tumors Lead compounds SUGEN
- ------------------------------------------------------------------------------------------------------------------------
Met TK Antagonist Stomach, colorectal and lung Screening SUGEN
cancers
- ------------------------------------------------------------------------------------------------------------------------
Five undisclosed cancer targets Certain major cancers Research and Zeneca
screening
- ------------------------------------------------------------------------------------------------------------------------
Other proprietary programs Various cancers Research and SUGEN
screening
- ------------------------------------------------------------------------------------------------------------------------
OTHER PROGRAMS
- ------------------------------------------------------------------------------------------------------------------------
SU5271 Psoriasis Phase I SUGEN
EGF TK Antagonist
- ------------------------------------------------------------------------------------------------------------------------
Insulin TP Antagonist Diabetes Type I/Type II Preclinical SUGEN
- ------------------------------------------------------------------------------------------------------------------------
Immunology targets Immune suppression, acute Research and SUGEN
inflamation screening
- ------------------------------------------------------------------------------------------------------------------------
Flk-1/KDR TK Antagonist Rheumatoid arthritis Preclinical SUGEN
(other targets)
- ------------------------------------------------------------------------------------------------------------------------
Flk-1/KDR TK Antagonist Angiogenesis inhibition in Preclinical Allergan
(other targets) ophthalmology
-Diabetic retinopathy
-Macular degeneration
- ------------------------------------------------------------------------------------------------------------------------
Neurology targets Neurodegenerative diseases Research and SUGEN
screening
- ------------------------------------------------------------------------------------------------------------------------
PDGF TK Antagonist Cardiovascular diseases Lead compounds SUGEN
(and other targets)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<S> <C> <C>
(1) "Research" Cloning and characterization of novel TKs, TPs, STKs and related downstream signalling
molecules (Target Identification) and validation of the role, if any, of those molecules in a
given disease (Target Validation).
"Screening" Screening to identify lead compounds.
"Lead Compounds" Evaluating drug leads and/or natural product extracts in relevant IN VITRO cellular models
including genetically engineered cell lines, as well as EX VIVO human tissues and IN VIVO
animal models.
"Preclinical" Pharmacology and toxicology testing in preclinical models, drug formulation and manufacturing
scale-up to gather necessary data to comply with applicable regulatory protocols prior to
submission of an IND with the FDA.
</TABLE>

See "Risk Factors" for a discussion of certain risks related to the
development of potential products.

29
<PAGE>
CANCER

Research over the past 20 years has reinforced the view that cancer is a
disease involving damage, loss or amplification of specific genes. Moreover, of
the numerous oncogenes identified to date, many appear to be abnormal versions
of TK and STK signalling pathway components, such as ligands, TKs or STKs or
downstream signalling molecules. These discoveries have led to the realization
that dysfunctional TK or STK signalling pathways play an integral role in
cancer. More recently, TPs have been implicated as potential tumor suppressor
genes due to their ability to counteract the activity of TKs.

As a result of the close linkage between TK, TP and STK aberrations and
cancer, SUGEN believes that certain cancers can be recategorized according to
specific TK, TP and STK signalling pathway defects rather than merely by
physical location in the body (e.g., breast, lung, brain). Several observations
support this approach. For example, TK overexpression is not a transient
phenomenon. Cancer cells that exhibit TK overexpression do so continuously. In
addition, in many cases a cancer cell exhibits heavy overexpression of only one
TK. For instance, when cancer cells metastasize from a Her2-dependent tumor and
establish themselves at a remote site in the body, the distal tumor has also
been observed to overexpress Her2. Furthermore, SUGEN has shown that certain
tumor cells that overexpress a TK are more sensitive to TK inhibitors than
normal cells. The Company believes that these observations are the basis for a
new approach to cancer therapy which might commence with a sample of biopsy
material being sent to a pathology lab for gene expression profiling in order to
determine the nature of the cellular abnormality, such as overexpression of a
TK. This diagnosis could then be used to select the appropriate target-specific
signal transduction inhibitor for treatment.

Many of the cancers that SUGEN's programs are addressing have patient
subsets with extremely poor prognoses and no alternative for effective
treatment. For example, in certain cancers of the brain, breast, ovary and
pancreas, patient subsets can be defined in advance for which the average
survival time is short. By focusing on these patients initially, the Company
believes that it may be able to demonstrate statistically significant efficacy
with relatively small patient numbers and possibly shortened clinical trial
duration if the compounds prove to be active. See "Risk Factors--Government
Regulation; No Assurance of Regulatory Clearance."

SU101/PDGF TK ANTAGONIST. SU101 is a small synthetic molecule which
inhibits the platelet-derived growth factor receptor signalling pathway. PDGF is
a growth factor ligand that stimulates the growth of a variety of cell types
through binding to the PDGF TK. The PDGF TK was first cloned by a group of
collaborators led by Dr. Ullrich in 1983. In December 1994, the Company filed
its first IND with the FDA for SU101, a PDGF TK signalling antagonist. To date,
over 140 patients have been treated with SU101 in seven Company-sponsored
clinical trials. The Company is in the process of completing the data analysis
on a Phase II clinical trial for use of SU101 as a treatment for refractory
malignant glioma and currently expects to initiate a Phase III clinical trial in
this indication in late 1997, subject to FDA review of the planned trial design.
A Phase II clinical trial of SU101 in combination with BCNU, the chemotherapy
drug that is part of the standard treatment regimen in newly diagnosed brain
cancer patients, was initiated recently, and the Company currently expects to
initiate a Phase II clinical trial of SU101 in hormone refractory prostate
cancer by the end of 1997. Based on Phase I and II data, the Company may conduct
additional Phase II clinical trials in astrocytoma (a type of primary brain
cancer), ovarian and non-small cell lung cancers.

To expedite the commercialization of SU101, the Company is focusing its
initial development efforts on malignant glioma, a highly aggressive brain
tumor, and selected other solid tumor patient populations with very poor
prognoses. A subset of each of these cancers appears to be correlated with
aberrant PDGF TK signalling. Malignant glioma patients and refractory ovarian
patients have a mean survival time of approximately nine months and less than 12
months, respectively. Given the poor prognoses for these patients, the Company
believes that FDA approval could potentially be obtained based on smaller-scale
clinical trials than are typically required for approval of NDAs. There can be
no assurance, however, that the Company will be able to rely on smaller-scale
clinical trials to expedite the commercialization of SU101 for these patient
populations. SUGEN believes SU101 may also have applications in other cancers
that involve aberrant PDGF TK signalling, including prostate, ovarian and
non-small cell lung cancers.

30
<PAGE>
In March 1997, the U.S. patent office issued to SUGEN a patent on the
formulation of SU101. In addition, the Company has received notices of allowance
for two applications containing claims relating to the use of SU101 in treating
certain PDGF TK related cancers and tumors. However, there can be no assurance
that these patents will issue in a timely manner, or at all. The Company has
filed additional patent applications in the United States and abroad claiming
the method of treating PDGF TK driven cancers with SU101. The Company presently
does not know if commercialization of SU101 will infringe certain patents issued
to a large pharmaceutical company but believes that these patents may be subject
to claims of invalidity as they relate to SU101. See "--Patents and Proprietary
Technology."

SU5416/FLK-1/KDR TK ANTAGONIST. Formation of the body's network of blood
vessels, or angiogenesis, occurs throughout childhood. This process generally
stops once a person reaches adulthood. Exceptions exist during wound healing and
the menstrual cycle. Angiogenesis is re-triggered in adults, however, during
certain pathological conditions including tumor formation and metastasis, and in
certain ophthalmic disorders, including diabetic retinopathy and macular
degeneration. The pharmaceutical industry has long sought small molecule
inhibitors of angiogenesis with low toxicity profiles because, theoretically,
inhibiting angiogenesis may limit tumor growth, extend the period of
disease-free remission in patients who respond to front-line therapy and reduce
the potential for metastases. The potential markets for such a product include
all patients with solid tumors where angiogenesis inhibition may play a role as
an important adjunctive therapy, and in patients with metastatic disease.

SUGEN and its collaborators have identified the Flk-1/KDR TK as a receptor
for vascular endothelial growth factor ("VEGF") and as a major regulator of
angiogenesis. Blocking Flk-1/KDR TK activity blocks the ability of most tumors
to stimulate formation of blood vessels and thus deprives the tumor of necessary
nutrients. In preclinical studies conducted by researchers at SUGEN and
collaborating laboratories, small molecule inhibitors of the Flk-1/KDR blocked
VEGF-dependent angiogenesis, as well as vascular permeability. Additionally,
human endothelial cells were prevented from undergoing cell division that is
required for the formation of new blood vessels. In June 1997, the Company filed
an IND in cancer for SU5416, a drug developed from the Company's Flk-1/KDR TK
angiogenesis inhibitor program that addresses patients with solid tumors and may
also have application as an anti-metastasis agent. Phase I clinical trials in
patients with solid tumors were initiated in September 1997.

The Company has established an exclusive research and licensing agreement
with the MPP to support the work of Dr. Werner Risau, a SUGEN consultant and a
director of MPP, and his laboratory. Dr. Risau is one of the leading researchers
in the field of angiogenesis. In collaboration with the laboratories of Dr.
Risau and Dr. Ullrich, SUGEN is conducting further studies into the mechanisms
of angiogenesis, including the identification of additional TK and TP related
signalling pathways involved in angiogenesis.

GRB2 ANTAGONIST. Growth factor receptor binding protein 2 ("GRB2"), a
downstream signalling adaptor molecule, was originally cloned by Dr.
Schlessinger's laboratory. GRB2 has been shown to be an essential element in the
signal transduction pathway of many TKs, particularly as a link between TKs and
Ras. (See "Raf Antagonist" below.) SUGEN is investigating the role of GRB2 in
linking TK signalling to Ras activation in certain TK induced cancers, with the
belief that inhibition of GRB2 might be of therapeutic benefit for a broad range
of cancers typified by an activation of the TK-Ras pathway. In April 1997, the
U.S. patent office issued a patent on SUGEN's proprietary cancer target GRB2.
Other patent claims with respect to this target have also been filed.

SUGEN has developed proprietary assays for high-throughput screening for
GRB2 inhibitors and has now identified a novel class of signal transduction
inhibitors that act by blocking the function of the GRB2 adaptor protein. IN
VITRO studies indicate that SUGEN's GRB2 inhibitors act as cytostatic agents,
causing cancerous cells to cease multiplying or enter programmed cell death
(apoptosis). Preliminary IN VIVO studies indicate efficacy in tumor growth
inhibition with identified lead compounds.

PAN-HER ANTAGONIST (FORMERLY HER2 ANTAGONIST). Her2 is a TK, first cloned
by Dr. Ullrich, which is believed to play an important role in certain
aggressive breast, ovarian, gastric and lung cancers. Dr. Ullrich and

31
<PAGE>
Dr. Dennis Slamon of the University of California at Los Angeles Medical Center
and member of SUGEN's Science Advisory Board have established the clinical
relevance of overexpression of Her2 in human breast and ovarian cancers. In
their study of approximately 200 patients, it was found that almost 30% of
breast and ovarian cancer patients overexpress Her2 and that high levels of Her2
in a patient's tumor correlated with reduced survival time. Since that time,
subsets of other types of human tumors have been shown to express high levels of
Her2, including gastric and lung cancers. Animal data from several laboratories
has demonstrated that the suppression of Her2 activity has a significant
inhibitory effect on tumor growth, validating Her2 as a target for cancer
therapy in the subset of patients that overexpress this TK.

Monoclonal antibodies targeting Her2, including one developed by Dr.
Ullrich, are currently in clinical trials by others for certain cancers. While
the Company believes that these trials may serve to validate the concept of
targeting aberrant TKs in cancer, SUGEN believes that a small molecule inhibitor
of Her2 which also blocks the closely related Her1 and Her4 receptors (thus, a
Pan-Her antagonist) has the potential to be a more attractive therapy. SUGEN has
identified a number of potentially highly potent and specific small molecule
inhibitors of Pan-Her. The Company is currently testing several of these
molecules in animal models. The Company is pursuing its Pan-Her antagonist
program in collaboration with ASTA Medica.

ORALLY AVAILABLE PDGF TK ANTAGONIST. SUGEN is committed to developing an
orally active small molecule inhibitor of the PDGF TK signalling pathway. From a
commercialization standpoint, an orally active compound may be complementary to
SU101 in that it may be developed for use as a chronic therapy. The Company
currently has several small molecule inhibitors of the PDGF TK signalling
pathway which IN VIVO animal studies appear to be orally available and may have
the potential to treat numerous PDGF TK-driven proliferative disorders,
especially cancers. The PDGF TK also appears to be involved in both restenosis
of blood vessels after clearance by angioplasty, and more broadly in
atherosclerosis.

RAF ANTAGONIST. Raf, an STK, is a downstream signalling molecule through
which numerous signalling pathways have been found to converge. Raf is known to
interact with the oncogene Ras, and is required in order for Ras to relay its
signals. The Ras oncogene has long been known to play an integral role in
certain cancers, and may be involved in over 20% of all tumors including
approximately 90% of pancreatic tumors. Moreover, Ras has drawn the attention of
the pharmaceutical industry for many years because of its frequent mutational
activation in tumor cells. However, since its biochemical activity and upstream
activators were not well defined, the search for Ras inhibitors has proved
difficult. In contrast, the Company believes that Raf is a more suitable target
for therapeutic intervention.

Dr. Ulf Rapp, Director of Molecular Biology at the University of Wurzburg,
Germany, a SUGEN consultant and the discoverer of Raf, has demonstrated that
inhibition of Raf blocks the tumor-forming potential of Ras. SUGEN has developed
proprietary Raf-based assays and is screening for small molecule inhibitors of
Raf. The Company believes that drugs that inhibit Raf signalling may arrest
tumors driven by excessive Ras activity. The Company is pursuing its Raf
Antagonist program in collaboration with ASTA Medica.

MET TK ANTAGONIST. Overexpression of Met TK may be implicated in a
significant portion of tumors of the lung, stomach and colon. Moreover, Met TK
may play a role in the metastasis of solid tumors. SUGEN has recently completed
target validation studies on Met TK and has commenced screening against this
target.

PSORIASIS

Psoriasis is a chronic skin disorder that affects approximately four million
people in the United States, and annual treatment costs in this country are
estimated at over $1.5 billion. There are few currently available drugs for this
disease that offer satisfactory efficacy and safety. Hyperproliferation of
keratinocytes contributes to psoriasis, and research by SUGEN and others has
demonstrated that EGF TK signalling is required for the growth of keratinocytes.
SUGEN's research in psoriasis was conducted in part by Hebrew University of
Jerusalem.

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<PAGE>
SU5271/EGF TK ANTAGONIST. SU5271, a selective inhibitor of EGF receptor
signalling, represents the first extension of SUGEN's drug discovery platform
into the field of dermatology. SUGEN has received an exclusive, worldwide
license from Zeneca for the dermatologic uses of SU5271 and has also filed
patent applications of its own with respect to this compound.

The Company is currently conducting Phase I clinical trials to evaluate the
safety of the topical use of SU5271 in psoriatic patients at Mount Sinai
Hospital in New York. SU5271 is a synthetic small molecule signal transduction
inhibitor that blocks keratinocyte growth.

ANGIOGENESIS INHIBITION IN OPHTHALMOLOGY

A number of ophthalmological disorders involve neovascularization of
different regions of the eye. Since Flk-1/KDR TK is known to be important in
other neovascularization processes (such as in tumors), it may also play a
crucial role in ocular neovascularization. Thus, Flk-1/KDR TK inhibitors might
be therapeutically beneficial for treating ophthalmic disorders. In October
1996, the Company signed a collaboration agreement with Allergan to identify,
develop and commercialize novel angiogenesis inhibitors for the treatment of
ophthalmic diseases. Flk-1/KDR TK and other angiogenesis targets are currently
under evaluation.

DIABETES

Both Type I and Type II diabetes are characterized by pathologically high
levels of blood glucose due to inefficient cellular uptake and metabolism of
glucose. Type I diabetes is characterized by insufficient levels of insulin and
is thought to be caused by the autoimmune destruction of the pancreatic cells
that make insulin. In contrast, Type II diabetics often produce elevated levels
of insulin, although this insulin does not seem to have sufficient effect. All
Type I and some Type II diabetics are treated with insulin. The long-term side
effects of diabetes and of insulin therapy can be severe.

Dr. Ullrich was the first to clone the TK receptor to which insulin binds.
In a normal state, the body secretes insulin which in turn binds to the insulin
TK. These events activate the insulin TK signalling pathway, resulting in
cellular uptake of glucose and glucose metabolism. In Type I and Type II
diabetes, the TK signalling mechanism is impaired. Certain TPs appear to be
involved in down regulating (dephosphorylating) the insulin TK signalling
pathway. SUGEN believes that a small molecule which specifically inhibits these
TPs may increase insulin TK signalling, thereby increasing glucose uptake and
metabolism.

SUGEN's animal studies with its lead phosphatase inhibitor compounds have
demonstrated the ability of its initial lead compounds to lower blood glucose
levels with efficacy comparable to currently available drugs. These compounds
will serve as the starting point for medicinal chemistry and drug development
with the aim of producing an optimized drug candidate to go forward into
clinical development. Based on the mechanism of action of these compounds and
their oral availability, the Company believes that it now has the opportunity to
develop drug candidates for the treatment of both Type II (non-insulin
dependent) and Type I (insulin dependent) diabetes.

NEUROLOGY

TKs, TPs and their signalling pathways are known to play key roles in the
maintenance of the central and peripheral nervous systems. Several known
neurotrophic factors bind to TKs, and thereby regulate differentiation and
survival of neurons. SUGEN has identified novel TKs and TPs whose expression is
restricted to the nervous system and which may serve as therapeutic targets for
intervention in neurological diseases. SUGEN has also identified lead compounds
that act as selective TP inhibitors and are able to stimulate neuron
differentiation in IN VITRO models.

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<PAGE>
IMMUNOLOGY

The role of TKs in the generation and maintenance of the human immune system
has been established by a number of researchers in different laboratories around
the world. SUGEN has developed a number of immunology related assays which it is
screening against its library of compounds and extracts. For example, ZAP-70, an
intracellular TK, appears to be a primary regulator of the generation and
function of the T-lymphocyte cell population of the immune system. This TK and
other signal transduction molecules in the immune system represent potential
drug discovery targets for identifying novel immunosuppressive and
immuno-modulating drugs. The primary clinical indications that the Company is
focusing on in immunology are immune suppression and acute inflamation.

SUGEN'S DRUG DISCOVERY TECHNOLOGY

SUGEN's goal is to discover and develop drugs that target specific TKs, TPs,
STKs or related downstream signalling molecules. SUGEN's drug discovery effort
is focused primarily on the discovery of small molecule drugs derived from
synthetic compound libraries and collections of natural product extracts,
including microbes, fungi and plants. As compared to biologic pharmaceuticals
such as proteins, peptides and carbohydrates, small molecules often offer
advantages as potential drugs. Small molecules can more easily penetrate cell
membranes and the blood brain barrier, can often be delivered orally, and can be
less immunogenic. These molecules also tend to involve substantially lower
process development and manufacturing costs. Using inhibition of TK
phosphorylation in a whole cell environment as an initial screening criterion,
SUGEN has been able to identify lead compounds in a number of its programs that
penetrate the cell easily, show minimal cytotoxicity and demonstrate potent and
selective activity on given targets.

SUGEN's process of drug discovery includes the following steps, regardless
of disease area: (1) target identification, using advanced genomics techniques
and the Company's proprietary bioinformatics program; (2) target validation in
relevant IN VIVO disease models; (3) whole cell or other assay design and
target-driven screening of compounds for leads; and (4) lead optimization using
crystallography and computational chemistry. The Company's in-house research
teams also work closely with NYU, MPI and MPP in target identification and
target validation. In this case, the remaining steps of this process are
conducted primarily by SUGEN or by its corporate partners.

TARGET IDENTIFICATION

SUGEN's genomics efforts are focused exclusively on certain families of
signal transduction genes, which make up approximately one percent of the entire
human genome. These families include the TKs, TPs, STKs, adaptor molecules and
certain other important molecules involved in cellular signalling. Within this
specific area of focus, SUGEN identifies and defines the function of novel genes
and their protein products, and in turn assesses their utility as targets for
therapeutic intervention against diseases of interest to the Company.

SUGEN believes that substantially the entire human genome will be sequenced
within a few years, and most of that sequence data will be available on public
databases or elsewhere. SUGEN's target identification effort, therefore, is
focused on determining the function of novel genes. In this regard, SUGEN has
made a strategic commitment to its bioinformatics platform, representing a
bridge between abundant gene sequence data and disease-relevant discoveries.

SUGEN's bioinformatics program starts with a physical repository of the
approximately 200 known signal transduction genes in addition to other genes
discovered by SUGEN but not published to date. SUGEN also has a proprietary
panel of oligonucleotide primers capable of recognizing genes that are minimally
related to genes already in the SUGEN library. All of this information is
supported by an in-house massively parallel computer processing platform capable
of approximately 68,000 million instructions per second (mips) throughput. Using
sophisticated pattern recognition algorithms, SUGEN is able to rapidly mine the
public databases looking for new sequence material of interest, for the complete
sequences of gene fragments identified from cells of interest, for additional
members of newly discovered families of signal transduction genes, or for
homologs of

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human genes in non-human genome databases that could provide quick insights into
the function of the new human gene.

SUGEN has used this bioinformatics platform to develop a proprietary
technology called transcript imaging, for which the Company has filed for patent
protection. This technology enables SUGEN researchers to take a small sample of
cells or tissue of interest and to obtain rapidly a systematic analysis of the
expression levels in the sample of every TK and TP in SUGEN's library.
Transcript imaging allows SUGEN to identify quickly signalling pathways that
play key roles in specific cell types and, more importantly, to compare diseased
cells to healthy cells in order to determine where aberrant signalling may play
a causative role in a disease. For example, if a particular signal transduction
gene is heavily overexpressed in a significant proportion of samples of a
specific tumor type, that gene becomes a potential candidate for target
validation. If the gene can subsequently be validated as playing a causative
role in these tumors, it may be adopted as a target for drug discovery. SUGEN
believes that transcript imaging also has the potential to become an important
diagnostic tool, an opportunity which SUGEN may seek to pursue in partnership
with an established diagnostics company.

Using both in-house bioinformatics and molecular biology capabilities, SUGEN
and its collaborators have discovered more than 15 TKs, 15 TPs and 135 STKs for
which the Company has filed or intends to file patent applications.

TARGET VALIDATION

A primary challenge in SUGEN's target-driven drug discovery is to progress
as efficiently as possible from identifying a potential new target to verifying
that a drug which specifically acts on that target could have a significant
therapeutic benefit in the treatment of a given disease. Within this process,
"target validation" is a crucial step before committing resources to assay
development and screening for target-specific drug leads. The first step in
validating a novel target usually involves developing a battery of proprietary
reagents, including truncated or point-mutated genes, anti-sense constructs and
antibodies. In the case of novel receptors, where the natural ligands and
signalling substrates initially may be unknown, the Company employs a variety of
advanced methods for identifying and cloning these molecules. Using these
reagents, the Company then engineers cell lines in which it has clearly
characterized the expression levels and activity of the target gene. These cell
lines can then be used to establish IN VITRO and IN VIVO whether down-regulating
the target will block the disease cascade. If so, the target is considered
validated.

ASSAY DESIGN/SCREENING

From its inception, SUGEN has committed significant resources to building a
strong assay development capability. The Company regards this capability as an
important component of its proprietary position in the discovery and development
of target-specific signal transduction inhibitor drugs. Assay quality is the
most important determinant of any screening program's productivity. This becomes
even more important in target-driven drug discovery. SUGEN primarily employs
engineered whole cell assays rather than biochemical assays. A majority of
SUGEN's assays are designed for high-throughput robotics screening, and its core
assay technologies are broadly applicable to TKs, TPs and STKs and related
signalling molecule targets.

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SUGEN's drug discovery process employs a battery of proprietary assays and
models engineered specifically to ensure that the target is present and
functional in a consistent fashion at each step of the screening cascade.
SUGEN's assays are designed to answer the following four questions:

<TABLE>
<S> <C>
Screen 1 Can a compound block the signalling of the target in question, within the
context of a living cell?

Screen 2 Is the compound sufficiently selective in blocking the desired target's
signalling (i.e., can it block the target without blocking closely related
targets)?

Screen 3 Does the compound exert the desired biological effect on a living cell (e.g.,
block cell growth)?

Screen 4 Does the compound exert the desired biological effect within the context of
an IN VIVO disease model?
</TABLE>

By employing this proprietary screening cascade, SUGEN hopes to identify
lead compounds which are active in a whole cell environment, are sufficiently
potent and specific to a given target, and are active in an IN VIVO disease
model which is driven by the given target.

Once targets are validated by SUGEN and the assays have been developed and
validated, diverse libraries of synthetic small molecules and natural product
extracts are screened in order to identify potential drug leads. SUGEN currently
has a number of targets moving through its screening assays, and as new targets
are validated SUGEN continues to add to its panels of assays. Each additional
assay enhances the Company's ability to determine the specificity of lead
compounds. Along with assay design and screening, SUGEN has devoted significant
resources to acquiring libraries of structurally diverse compounds from a
variety of sources around the world.

CHEMICAL COMPOUND LIBRARIES. SUGEN has entered into a number of agreements
designed to obtain chemical compounds for screening. These agreements cover a
broad range of chemical entities from sources across the world. The Company
currently has over 25,000 chemical compounds available in-house for screening
and has access to a portion of Zeneca's and ASTA Medica's libraries for
collaboration targets.

NATURAL PRODUCT SOURCES. SUGEN has gained access to commercial and
non-commercial sources of natural products, including microbial, plant and
fungal extracts. These sources represent an international collection network
that provides substantial diversity of material, including extracts from Japan,
China, Europe and North America. The Company is currently negotiating to gain
access to additional sources of extracts from different parts of the world. The
Company currently has over 16,000 natural product extracts available in-house
for screening.

LEAD OPTIMIZATION

The objective of SUGEN's lead optimization program is to increase the
potency, specificity and pharmacologic properties of lead compounds by designing
and synthesizing analogs. Lead optimization uses an iterative process employing
panels of assays to test for TK activity, TK specificity, and IN VIVO
pharmacologic endpoints of lead molecules in order to derive compounds with
clinical utility. All results are entered into a database that allows for
determination of structure and activity relationships leading to synthetic
chemistry efforts that follow important parameters for drug development. This
growing database represents a proprietary source of information on relationships
between small molecules, their specific targets, and the pharmacologic
properties of the compounds which the Company believes will accelerate the
optimization of lead compounds in several SUGEN programs.

SUGEN has recently added crystallographic analysis and computational
chemistry to its drug discovery process. Work conducted in Dr. Schlessinger's
laboratory at NYU, as well as with other collaborators, allows SUGEN scientists
to elucidate how the Company's product candidates bind to the catalytic core of
TKs and

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provides a basis for further directed synthetic chemistry efforts in lead
optimization, potential development of second generation compounds and the
development of novel inhibitors against new targets. In this regard, in a
collaboration with ArQule, Inc. ("ArQule") SUGEN used combinatorial chemistry
technology closely coordinated with crystallography data to rapidly synthesize
large numbers of analog compounds around SUGEN's lead compounds. The
crystallographic analysis provides a rationale to identify novel chemical
templates that may provide a cache of novel compounds with broad application to
the inhibition of TKs and STKs.

The Company believes that its ability to improve potency and specificity in
the early stages of drug discovery process and pharmacologic features in the
later stages of lead optimization may reduce the incidence and severity of side
effects and thus may reduce the cost, time and risk associated with bringing
potential products to market.

PRECLINICAL DEVELOPMENT

Wherever possible, SUGEN's IN VITRO and animal models utilize tumor cell
lines, reagents and techniques developed during target validation; therefore,
the appropriateness of the model system is already known prior to drug testing.
In addition, many other tools used during target validation are used again at
this stage of testing. Typically, additional cell lines and animal models will
need to be developed in order to enable the accurate assessment of a compound's
target-specific activity in an IN VIVO environment.

CORPORATE AND CLINICAL DEVELOPMENT COLLABORATIONS

The Company's approach to corporate partnering is different in cancer than
it is in other disease areas. In the cancer field, SUGEN intends to build a
vertically integrated oncology business in North America, with the objective of
bringing to market a family of target-specific signal transduction inhibitors
proprietary to SUGEN. To market its products effectively, the Company currently
intends to build a focused U.S. sales force to target the major cancer treatment
centers. The Company plans to seek additional corporate partners to fund product
development and commercialize its products in Europe and Asia. While the Company
generally intends to retain rights to its cancer programs in North America,
SUGEN is funding a portion of its ongoing cancer research through a
collaboration with Zeneca for the development of five undisclosed cancer
targets. Pursuant to its agreement with Zeneca, the Company will have the
opportunity to obtain profit participation rights in the North American market
by contributing to clinical development costs as incurred and will receive
milestone payments and royalties on worldwide sales. Outside of oncology, the
Company's strategy is to seek corporate collaborations or joint ventures to
which SUGEN contributes validated targets, screening technologies and drug leads
while the partner provides the disease-specific and drug development expertise
as well as marketing experience, in addition to providing funding to bring
potential products to market. As part of this strategy, the Company entered into
a collaboration with Allergan for angiogenesis inhibition in ophthalmic
applications resulting from the Company's Flk-1/KDR TK antagonist program. See
"Risk Factors--Dependence on Collaborative Relationships."

ZENECA LIMITED

In January 1995, the Company established a research collaboration with
Zeneca. In this collaboration, Zeneca and the Company seek to discover and
develop novel small molecule signal transduction inhibitors that address certain
substantial oncology markets. The collaboration covers five undisclosed cancer
programs, but excludes all programs upon which the Company is currently building
its own cancer business. The two companies have agreed upon specific programs to
be included initially in the collaboration, with Zeneca supporting SUGEN's work
on these programs for an initial term of five years. SUGEN performs target
identification, target validation, assay development and screening for initial
leads, while Zeneca scientists will concentrate on lead identification and
optimization and preclinical and clinical development activities. Zeneca will
market collaboration products worldwide. SUGEN has also granted Zeneca a right
of first negotiation to expand this collaboration in order to encompass
additional SUGEN cancer research projects, but has specifically excluded the
cancer related projects that SUGEN already has in development.

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Under the terms of the agreement, Zeneca purchased 789,141 shares of Common
Stock at a price of $15.84 per share. This $12.5 million equity investment,
combined with Zeneca's $7.5 million participation in SUGEN's October 1994
initial public offering, increased Zeneca's ownership in the Company to
approximately 20%. Zeneca has committed not to increase its holdings above this
level without the approval of SUGEN's Board of Directors. Zeneca participated in
the Company's September 1995 and October 1996 financings, purchasing an
additional 281,875 and 509,000 shares, respectively, of Common Stock in order to
maintain its ownership position. To date, Zeneca has invested approximately
$29.5 million in the Company's Common Stock. Zeneca has indicated to the Company
that it intends to purchase 456,000 shares in the Offering at the public
offering price.

In addition to its equity purchases and annual research funding, Zeneca paid
a $5.0 million technology set-up fee to SUGEN, and will make milestone payments
(which may be offset against royalties over time) tied to the progress of
compounds in the collaboration, and royalties on worldwide sales of any
collaboration products. SUGEN will also have the right to contribute to clinical
development costs on each program, thereby earning participation in the North
American profits from successful products coming out of such programs over and
above its royalty entitlement. Apart from this option, Zeneca will be
responsible for all development expenses. If a third party acquires 35% or more
of SUGEN's voting stock, Zeneca may terminate the collaboration agreement but
retain exclusive royalty-bearing license rights to any collaboration products
for which IND filing preparations are complete and a separate license agreement
has been executed. There can be no assurance that this collaboration will result
in any milestones being achieved or any products being successfully developed.

The agreement provides for SUGEN to be granted access to Zeneca's large
proprietary collection of characterized chemical structures for screening
against SUGEN's signal transduction targets, both within and outside this
collaboration, subject to certain restrictions and a right of first licensing
negotiation on Zeneca's part. Zeneca has granted to SUGEN the right of first
negotiation to license from Zeneca oncology products (other than those
specifically excluded under the agreement) which Zeneca decides to license to a
third party.

In January 1996, SUGEN licensed a small molecule inhibitor of the EGF TK
from Zeneca. The compound, SU5271, was licensed from Zeneca as an extension of
the original collaboration agreement SUGEN signed with Zeneca. Under the terms
of this license agreement, Zeneca granted to SUGEN an exclusive, worldwide
license, with right to sublicense the compound, in exchange for milestone and
royalty payments. The agreement provides that SUGEN shall have overall control
and responsibility for the preclinical and clinical development, regulatory
strategy, process development and commercialization of SU5271.

NATIONAL CANCER INSTITUTE

In April 1996, the Company entered into a Collaborative Research and
Development Agreement ("CRADA") with the National Cancer Institute (the "NCI")
for the application of SUGEN's proprietary transcript imaging technology in
order to identify the differences in expression patterns of signal transduction
genes that characterize each of the sixty tumor cell lines which constitute the
NCI's screening panel. Following this transcript imaging analysis of the panel,
the results will be correlated to the data generated over several decades at the
NCI from the screening each year of many thousands of compounds and natural
extracts against the panel. Interesting lead compounds from the NCI's open
repository collection will be tested in SUGEN's target-specific signal
transduction assays, and lead compounds from SUGEN will also be tested against
the NCI panel. SUGEN will have the option to license discoveries made through
this process for adoption into SUGEN's drug discovery programs.

ASTA MEDICA AKTIENGESELLSCHAFT

In December 1995, SUGEN and ASTA Medica entered into a collaboration to
research, develop, manufacture, market and distribute potential oncology
products based upon the Company's Pan-Her antagonist and Raf antagonist
programs. Under the terms of the collaboration, ASTA Medica will undertake the
medicinal chemistry and pharmaceutical development work on SUGEN's drug
candidates, and will perform preclinical and clinical development in Europe in
accordance with FDA standards. ASTA Medica paid SUGEN a $4.0 million technology
set-up fee and is providing additional consideration in the form of services
provided by ASTA

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<PAGE>
Medica pursuant to the collaboration but on non-collaboration programs.
Additionally, ASTA Medica purchased $9.0 million of Common Stock at a price of
$20.88 per share. In due course, SUGEN may receive milestone payments in the two
programs if they are successful. The agreement provides for ASTA Medica to
receive exclusive marketing rights to collaboration products in Greater Europe
(including countries and territories located in the former Soviet Union) and
South America, subject to an obligation to pay royalties on net sales in such
territories to SUGEN. ASTA Medica also has the right of first offer to
manufacture product to be sold in SUGEN territories. SUGEN retains marketing
rights in the rest of the world, subject to a royalty payable to ASTA Medica in
most circumstances.

ASTA Medica is an international pharmaceutical company headquartered in
Germany. The Company's research and development is focused on cancer,
respiratory diseases/allergies, pain, inflammation and disorders of the central
nervous system/epilepsy. The company is owned by Degussa, a German manufacturer
of fine chemicals and precious metals.

ALLERGAN

In October 1996, SUGEN entered into a collaboration with Allergan to
identify, develop and commercialize novel angiogenesis inhibitors for the
treatment of ophthalmic diseases. The collaboration will also establish a
comprehensive effort to identify and validate signal transduction targets for
choroidal and retinal neovascularization. Allergan will be the exclusive
corporate partner for SUGEN in ocular diseases of neovascularization and will
have exclusive rights to all ophthalmic uses of collaboration products and
collaboration know-how worldwide. In return, Allergan paid SUGEN a $2.0 million
initial fee for past research services and will fund collaboration research and
drug discovery at SUGEN for at least three years. Allergan initially purchased
$4.0 million of Common Stock at $20.88 per share and purchased an additional
250,000 shares of Common Stock at $12.00 per share in SUGEN's October 1996
follow-on offering. SUGEN will also receive payments upon achievement of certain
milestones and royalties with respect to worldwide sales of collaboration
products. In addition, SUGEN will have the right to contribute to clinical
development costs on each program, thereby earning participation in the North
American and European profits from successful products coming out of such
programs over and above its royalty entitlement. Apart from this option,
Allergan will be responsible for all development expenses.

RESEARCH COLLABORATIONS

SUGEN's scientific founders are Dr. Joseph Schlessinger, Chairman of the
Department of Pharmacology at NYU, and Dr. Axel Ullrich, Director of the
Department of Molecular Biology at MPI in Martinsried, Germany. In the fall of
1991, the Company entered into research collaboration agreements with both
institutions. More recently the Company has established additional research
collaborations relating to TPs, TKs and STKs identification and screening areas.

NEW YORK UNIVERSITY MEDICAL CENTER

In September 1991, SUGEN entered into a research and license agreement with
NYU granting the Company an exclusive worldwide license to the commercial uses
of TK, TP and STK technology being developed at NYU under the leadership of Dr.
Schlessinger. The research program being conducted at NYU centers on an
investigation of the mechanisms underlying the action of TKs, TPs and STKs and
their physiological role, as well as identifying, isolating and cloning new TKs,
TPs and STKs and the components of the signal transduction pathways emanating
from these proteins. The research program is scheduled to expire in 2001.
SUGEN's license to technology developed before or during the research program
will survive indefinitely unless NYU terminates the agreement upon insolvency of
the Company or due to a material breach by the Company. Upon such termination of
the agreement, NYU will continue to own the rights to the technology it has
developed under the agreement. The Company is obligated to pay royalties to NYU
on sales of any SUGEN products for which an IND is filed within four years of
the end of the NYU research period except for certain in-licensed products. As
part of this arrangement, NYU purchased 200,000 shares of SUGEN Common Stock at
the Company's formation.

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<PAGE>
MAX-PLANCK SOCIETY

SUGEN has formed research collaborations with two institutes of the
Max-Planck Society ("MPS") in Germany. These collaborations include licenses
from Garching Innovation GmbH ("Garching"), the licensing arm of MPS.

MAX-PLANCK-INSTITUT FUR BIOCHEMIE ("MPI"). The Company entered into a
research and license agreement with MPI and Garching which expired in August
1997 but is expected to be extended in modified form. This agreement grants
SUGEN an exclusive worldwide license to the commercial uses of TK and TP
technology being developed at MPI under the leadership of Dr. Ullrich. The scope
of the research program includes identification, isolation and cloning of novel
receptor TKs and TPs, characterization of signal transduction pathway components
and investigation of the normal biological role of these proteins as well as
their role in disease. SUGEN's license to technology developed before or during
the research program will survive indefinitely unless MPI terminates the
agreement upon insolvency of the Company or due to a material breach by the
Company. Upon such termination of the agreement, MPI will continue to own the
rights to the technology it has developed under the agreement. The Company is
obligated to pay royalties on sales of any products using this technology. As
part of this arrangement, MPS currently owns 200,000 shares of SUGEN Common
Stock purchased at the Company's formation.

MAX-PLANCK-INSTITUT FUR PHYSIOLOGISCHE UND KLINISCHE FORSCHUNG ("MPP"). In
October 1993, SUGEN entered into an agreement with MPP and Garching to support
the work of Dr. Werner Risau, a leading researcher in the area of angiogenesis.
This agreement grants SUGEN the exclusive worldwide right to commercialize Dr.
Risau's research on the inhibition of angiogenesis, vasculogenesis, vascular
permeability, chemotaxis and neurite outgrowth. This research collaboration will
terminate in October 1999. SUGEN's license to technology developed before or
during the research program will survive indefinitely unless MPP terminates the
agreement upon insolvency of the Company or due to a material breach by the
Company. Upon termination of the agreement, MPP will own the rights to the
technology it has developed under the agreement. The Company is obligated to pay
royalties on sales of any products embodying this technology.

ARQULE

In September 1996, SUGEN entered into a collaboration agreement with ArQule
to develop a proprietary collection of compounds designed to target binding
sites common to many signal transduction molecules found in cell-signalling
pathways. SUGEN provided lead chemical structures and new chemical structure
scaffolds which enabled ArQule to use its Directed Array combinatorial synthesis
technologies to build a novel collection of compounds with potentially broad
applications for the pharmaceutical industry. The research program expired in
September 1997. SUGEN retains exclusive rights to this collection with respect
to TK and STK targets, subject to certain payments and royalties to ArQule.
ArQule retains responsibility for commercializing the collection for targets in
other areas, subject to royalty-sharing arrangements with SUGEN.

OTHER SOURCES OF MATERIALS FOR SCREENING

The Company has entered into a number of agreements designed to obtain novel
biochemical and biological compounds and extracts for screening in its
proprietary assay systems. These agreements cover a broad range of chemical
entities from sources across the world. SUGEN also has an agreement with
Panlabs, Inc. of Bothell, Washington for the supply of microbial and fungal
extracts and the isolation and identification of active components from these
extracts. The original agreement was entered into in March 1993 and is renewable
for successive one year periods. The agreement most recently was amended in
early 1997, under which Panlabs will supply the Company with a significant
number of extracts from which the Company can select a portion to be designated
as "selected organisms." SUGEN will own all rights to the selected organisms and
the active compounds produced by them, including any derivatives. Panlabs is
supplying other companies with similar extracts under similar conditions. In
June 1995, SUGEN and Toyama Prefectural University of Tokyo initiated a
collaboration to discover new drugs for the treatment of cancer and other
diseases by inhibiting TKs and TPs and related molecules. A research team headed
by Professor Toshikazu Oki in the University's Biotechnology

40
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Research Center is providing to SUGEN compounds from Toyama's microbial strain
libraries for testing of potential biological activity. In July 1996, SUGEN and
the Institutes of Botany and Microbiology of the Chinese Academy of Sciences
initiated exclusive collaborations to discover novel signal transduction
inhibitor candidates and pharmacophores. The Institute of Botany and the
Institute of Microbiology have provided to SUGEN extracts from the Institutes'
plant and microbial collections for testing of potential biological activity
against SUGEN's signal transduction targets. Other SUGEN compound sources
include natural product libraries from around the globe, including microbial,
fungal and plant extracts, as well as additional sources of small organic
compounds.

PATENTS AND PROPRIETARY TECHNOLOGY

The Company's success will depend in part on its ability to obtain patents,
maintain trade secrets and operate without infringing on the proprietary rights
of others, both in the United States and in other countries. Patent matters in
biotechnology, and in particular with respect to receptors as screening tools
and/or the DNA encoding them, are highly uncertain and involve complex legal and
factual questions. Accordingly, the availability of and breadth of claims
allowed in biotechnology and pharmaceutical patents cannot be predicted. As of
September 30, 1997, SUGEN held exclusive rights to at least 12 issued U.S.
patents and had filed and/or held exclusive licenses to approximately 150 United
States patent applications, as well as related foreign patent applications.
There can be no assurance that the Company will develop products or processes
that are patentable, that patents will issue from any of the pending
applications, or that claims allowed will be sufficient to protect the Company's
technology. There can be no assurance that the Company's patents, if issued,
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection or competitive advantages to the
Company. Competitors have been issued patents, may have filed applications or
may obtain additional patents and proprietary rights relating to products or
processes competitive with those of the Company or which could block the
Company's efforts to obtain patents.

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have to participate in interference proceedings declared by the Patent and
Trademark Office to determine priority of invention, which could result in
substantial cost to the Company, even if the eventual outcome is favorable to
the Company. When patents issue in certain areas such as Japan and the European
community, third parties can oppose such issuance. Should the relevant patent
office institute a proceeding termed an opposition, the Company may decide to
defend its patent. There can be no assurance that the Company will be successful
or that the patent office will not revoke the patent or alter the scope of
protection previously granted.

SU101, a compound generally known by the name leflunomide, is a member of
the isoxazole family of compounds. Leflunomide was discovered more than 17 years
ago. A large pharmaceutical company holds a number of United States and foreign
patents and has filed applications in the United States and abroad covering
compositions of matter and pharmaceutical uses of leflunomide and structurally
related compounds. SUGEN has received notices of allowance for two applications
containing claims relating to the use of SU101 in treating certain PDGF TK
related cancers and tumors. However, there can be no assurance that these
patents will issue in a timely manner, or at all. While the Company believes at
this time that it will receive method of use patent protection in the United
States on SU101, there can be no assurance that any such patent protection will
be issued or that SUGEN will receive any patent protection on SU101 outside the
United States. SUGEN believes its research and development and its clinical
trials with SU101 in the United States are protected from claims of infringement
of the United States patents because such activities are being conducted solely
for uses reasonably related to development and submission of information to the
FDA for regulatory approval. Similar protection may not be available outside the
United States. Although the Company cannot predict whether or when SU101 will be
approved by the FDA for marketing in the United States, it believes that certain
of the pharmaceutical company's patents in the United States may have expired
when marketing does begin and that the remaining U.S. patents are either invalid
or will not be infringed by the manufacture and sale of SU101 in the United
States. However, the Company has learned that additional patents have issued in
the United States to the pharmaceutical company covering the use of leflunomide
and structurally related compounds for the treatment of named cancers. The
Company presently does not know if commercialization of SU101 will infringe
these additional patents but believes that the additional patents may be subject
to claims of invalidity as they relate to SU101. If the additional patents were
determined to be valid with respect to SU101, the Company may be required to
obtain a license from the pharmaceutical company in order to manufacture and
sell SU101 in the United States. There can be no assurance that SU101 will not
infringe the recently issued patents, that the term of the pharmaceutical
company's other existing patents will not be extended, that the claims of the
pharmaceutical company's pending patent applications will not be modified prior
to issuance so as to enhance their validity or scope, or that a court will agree
with the Company's beliefs regarding invalidity and non-infringement of the
patents. To date, the pharmaceutical company has not threatened or commenced
legal proceedings against the Company concerning possible patent infringement.
There can be no assurance that the pharmaceutical company in the future will not
assert claims against SUGEN or that the Company could reach agreement with the
pharmaceutical company for a license for SU101 upon favorable terms or at all,
if required. The inability of the Company to resolve this matter on favorable
terms or at all could have a material adverse effect on the Company. In any
event, the assertion of any such claims, even if resolved favorably to the
Company, could result in substantial costs to the Company.

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property owned by others in their work for the Company, disputes may also arise
as to the rights in related or resulting know-how and inventions.

COMPETITION

SUGEN is engaged in a rapidly changing field. Other products and therapies
that will compete directly with the products that the Company is seeking to
develop and market currently exist or are being developed. Competition from
fully integrated pharmaceutical companies and more established biotechnology
companies is intense and is expected to increase. Most of these companies have
significantly greater financial resources and expertise in research and
development, manufacturing, conducting preclinical studies and clinical trials,
obtaining regulatory approvals and marketing than the Company. Many of these
competitors have significant products that have been approved or are in
development and operate large, well-funded research and development programs.
For example, monoclonal antibodies targeting Her2, including one developed by
Dr. Ullrich, are currently in clinical trials by others for certain cancers.
Smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large pharmaceutical and established
biotechnology companies. Academic institutions, governmental agencies and other
public and private research organizations also conduct research, seek patent
protection and establish collaborative arrangements for products and clinical
development and marketing. These companies and institutions compete with the
Company in recruiting and retaining highly qualified scientific and management
personnel. Competition may also arise from companies pursuing differing
technological approaches to cancers and other disease indications targeted by
the Company's product candidates. In addition to the above factors, SUGEN will
face competition based on product efficacy and safety, the timing and scope of
regulatory approvals, availability of supply, marketing and sales capability,
reimbursement coverage, price and patent position. There is intense competition
for access to and use of libraries of compounds to use for screening and any
inability of the Company to maintain access to sufficiently broad libraries of
compounds for screening potential targets would have a material adverse effect
on the Company. There is no assurance that the Company's competitors will not
develop more effective or more affordable products, compete more effectively for
corporate partnerships or achieve earlier patent protection or product
commercialization than the Company.

GOVERNMENT REGULATION

The Company's ongoing research and development activities and the
manufacturing and marketing of the Company's potential products are subject to
extensive regulation by numerous governmental authorities in the United States
and other countries. Failure to comply with applicable FDA or other applicable
regulatory requirements may result in criminal prosecution, civil penalties,
recall or seizure of products, total or partial suspension of production or
injunction, as well as other regulatory action against the Company or its
potential products.

Prior to marketing in the United States, any drug developed by the Company
must undergo rigorous preclinical studies and clinical trials and an extensive
regulatory clearance process implemented by the FDA under the federal Food, Drug
and Cosmetic Act. Satisfaction of such regulatory requirements, which includes
satisfying the FDA that the product is both safe and effective, typically takes
several years or more depending upon the type, complexity and novelty of the
product and requires the expenditure of substantial resources. The Company is
focusing its initial development efforts related to SU101 for the treatment of
malignant glioma and selected other solid tumor patient populations with very
poor prognosis. Given the poor prognoses for these patients, the Company
believes that FDA approval could potentially be obtained based on smaller-scale
clinical trials than are typically required for approval of NDAs. There can be
no assurance, however, that the Company will be able to rely on smaller-scale
clinical trials to expedite the commercialization of SU101 for these patient
populations.

Preclinical studies must be conducted in conformance with the FDA's GLP
regulations. Before commencing clinical trials, the Company must submit to and
receive approval from the FDA of an IND. There can be no assurance that
submission of an IND would result in FDA authorization to commence clinical
trials. Clinical

43
<PAGE>
trials must meet requirements for institutional review board oversight, informed
consent and good clinical practice requirements and is subject to continuing FDA
oversight. The Company does not have extensive experience in conducting and
managing the clinical testing necessary to obtain regulatory approval. Clinical
trials may require large numbers of test subjects. Furthermore, the Company or
the FDA may suspend clinical trials at any time if they believe that the
subjects participating in such trials are being exposed to unacceptable health
risks or if the FDA finds deficiencies in the IND or the conduct of the trials.

Before receiving FDA clearance to market a product, the Company will have to
demonstrate that the product is safe and effective on the patient population
that will be treated. Data obtained from preclinical studies and clinical trials
are susceptible to varying interpretations which could delay, limit or prevent
regulatory clearances. In addition, delays or rejections may be encountered
based upon additional government regulation from future legislation or
administrative action or changes in FDA policy during the period of product
development, clinical trials and FDA regulatory review. Similar delays also may
be encountered in foreign countries. There can be no assurance that even after
such time and expenditures regulatory clearance will be obtained for any
products developed by the Company. If regulatory clearance of a product is
granted, such clearance will be limited to those disease states and conditions
for which the product is useful, as demonstrated through clinical studies.
Marketing or promoting a drug for an unapproved indication is prohibited.
Furthermore, clearance may entail ongoing requirements for postmarketing
studies. Even if such regulatory clearance is obtained, a marketed product, its
manufacturer and its manufacturing facilities are subject to continual review
and periodic inspections by the FDA. Discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on such
product or manufacturer, including costly recalls or even withdrawal of the
product from the market. There can be no assurance that any compound developed
by the Company alone or in conjunction with others will prove to be safe and
efficacious in clinical trials and will meet all of the applicable regulatory
requirements needed to receive marketing clearance.

44
<PAGE>
MANUFACTURING

The Company has no manufacturing facilities and relies on other
manufacturers to produce its compounds for research and development, preclinical
studies and clinical trials. The products under development by the Company have
never been manufactured for large-scale clinical trials or commercial purposes,
and there can be no assurance that such products can be manufactured at a cost
or in quantities necessary for large-scale clinical trials or to make them
commercially viable. Any change in the Company's existing relationships with, or
interruption in supply from, its manufacturers of the compounds used in its
clinical trials could affect adversely the Company's ability to complete its
ongoing clinical trials and to market its product candidates, if approved. Any
such change or interruption may have a material adverse effect on the Company.
In the event of a change in the supplier of a compound used in its clinical
trials, the Company would be required to collect data from its ongoing clinical
trials with respect to a compound and file such data with the FDA to establish
clinical comparability between the compound as produced by different suppliers.
There can be no assurance that the Company would be able to establish such
clinical comparability. A failure to establish clinical comparability could lead
to a requirement that the Company enlarge the size of an ongoing clinical trial,
which would delay the completion of such trial, increase its cost and
potentially delay the Company's pursuit of regulatory approval for a product
candidate. If the Company were unable to contract for a sufficient supply of its
compounds on acceptable terms, or if it should encounter delays or difficulties
in its relationships with manufacturers, the Company's preclinical studies and
clinical trial schedule would be delayed, resulting in delay in the submission
of products for regulatory approval or the market introduction and subsequent
sales of such products, which could have a material adverse effect on the
Company. Moreover, contract manufacturers that the Company may use must adhere
to current GMP regulations enforced by the FDA through its facilities inspection
program. If these facilities cannot pass a pre-approval plant inspection, the
FDA pre-market approval of the products will not be granted. See "Risk
Factors--Government Regulation; No Assurance of Regulatory Clearance" and "--
Lack of Manufacturing Experience; Reliance on Contract Manufacturers."

FACILITIES

SUGEN currently leases approximately 60,000 square feet of laboratory and
office space in Redwood City, California. The Company leases this space under
operating leases which last through November and December 1998. Approximately
48,000 square feet of the laboratory and office space currently under lease have
three-and five-year renewal options at the end of the leases.

In June 1997, the Company entered into a build-to-suit facility lease
agreement. Construction of the new facility is targeted for completion during
the fourth quarter of 1998, which coincides with the expiration of the Company's
current facility leases. Although the Company has not expended significant
amounts to date, the Company expects to invest in facility improvements and
incur move-related costs during 1998 as it approaches building completion.

The Company believes that the build-to-suit facility, in addition to its
options for additional space at the business park, will be sufficient to meet
its needs for the next several years. There can be no assurances, however, that
such space will be available on favorable terms, if at all.

EMPLOYEES

As of September 30, 1997, the Company had 180 full-time employees, including
a technical scientific staff of 134. The Company places an emphasis on obtaining
the highest available quality of staff. The Company has selected and assembled a
group of experienced scientists and managers with skills in a wide variety of
disciplines, including molecular biology, medicinal chemistry and pharmaceutical
development. None of the Company's employees are covered by collective
bargaining arrangements, and management considers relations with its employees
to be good. See "Risk Factors--Need to Attract and Retain Key Officers,
Employees and Consultants."

45
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is information regarding directors and executive officers of
the Company as of October 15, 1997.

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ------------------------------------------------- ------------------------------------------------------------
<S> <C> <C>
Stephen Evans-Freke (1)...................... 45 Chief Executive Officer and Chairman of the Board
Axel Ullrich, Ph.D........................... 53 Co-Chief Scientist and Director
Joseph Schlessinger, Ph.D.................... 52 Co-Chief Scientist and Honorary Director
K. Peter Hirth, Ph.D......................... 46 Executive Vice President and Chairman, Research and
Development Committee
Sara A. Courtneidge, Ph.D.................... 44 Senior Vice President, Research
Christine E. Gray-Smith...................... 48 Vice President, Finance and Assistant Secretary
Peter J. Langecker, M.D., Ph.D............... 46 Vice President, Clinical Affairs
Laura K. Shawver, Ph.D....................... 40 Vice President, Preclinical and Pharmaceutical Development
Susan M. Kanaya.............................. 34 Treasurer
Richard D. Spizzirri (2)..................... 63 Director and Secretary
Jeremy L. Curnock Cook....................... 48 Director
Charles M. Hartman (1)(2).................... 56 Director
Heinrich Kuhn................................ 61 Director
Donald E. Nickelson (1)(2)(3)................ 64 Director
Bruce R. Ross (1)............................ 56 Director
Glenn S. Utt, Jr. (3)........................ 71 Director
Michael A. Wall (2)(3)....................... 69 Director
</TABLE>

- ------------------------

(1) Member of the Executive Committee

(2) Member of the Audit Committee

(3) Member of the Compensation Committee

STEPHEN EVANS-FREKE, a founder of the Company, has served as Chief Executive
Officer and Chairman of the Board of the Company since its inception. Mr.
Evans-Freke was also a founder of Selectide Corporation, a biotechnology company
based on combinatorial chemistry screening technology, and served as its
Chairman of the Board from 1990 until its acquisition by Marion Merrell Dow,
Inc. in January 1995. From 1976 to 1990, Mr. Evans-Freke was employed by
PaineWebber Incorporated, a brokerage, financial service and investment banking
company, and served most recently as a member of its Board of Directors and
President of PaineWebber Development Corporation, a subsidiary of PaineWebber
Incorporated. He is also involved with various private companies, serving as a
director of Pharmaceutical Partners LLC, President of International Technology
Investment Managers, Inc. and Chairman of International Technology Investment
Managers (Asia) Inc. Mr. Evans-Freke formerly served as a director of Genentech
Development Corporation, Amgen Development Corporation, Centocor Development
Corporation and a number of other companies.

AXEL ULLRICH, PH.D., a founder of the Company, has served as a consultant to
the Company in his capacity as Co-Chief Scientist and has been a member of the
Board of Directors of the Company since its inception. Since 1988, Dr. Ullrich
has served as Director, Department of Molecular Biology, Max-Planck-Institut fur
Biochemie, a research institute of the Max-Planck Society, a German
government-funded organization of over eighty research institutes.

JOSEPH SCHLESSINGER, PH.D., a founder of the Company, has served as a
consultant to the Company in his capacity as Co-Chief Scientist, as well as an
honorary member of the Board of Directors, since its inception. He has served as
a professor and Chairman of the Department of Pharmacology at New York
University Medical

46
<PAGE>
Center since 1990, and as the Ruth and Leonard Simon Professor in Cancer
Research in the Department of Chemical Immunology at the Weizmann Institute of
Science in Rehovot, Israel, since 1984. He was formerly Director of Research for
Rorer Biotechnology, a biotechnology company.

K. PETER HIRTH, PH.D., Executive Vice President and Chairman, Research and
Development Committee, joined the Company in March 1992. Dr. Hirth held several
positions with Boehringer Mannheim GmbH, a German pharmaceutical company, from
August 1984 to December 1991, most recently as Vice President and Head of
Immunopharmacology, Allergy, Virology and Microbiology.

SARA A. COURTNEIDGE, PH.D. has served as Vice President, Research of the
Company since November 1994. Dr. Courtneidge was employed by the European
Molecular Biology Laboratory, an international molecular biology research center
in Heidelberg, Germany, from August 1985 to September 1994, first as Group
Leader, and most recently as Senior Scientist, Differentiation Programme. From
January 1981 to July 1985, Dr. Courtneidge was a member of the Scientific Staff
at the National Institute for Medical Research, London, England.

CHRISTINE E. GRAY-SMITH, Vice President, Finance and Assistant Secretary,
joined the Company in August 1994. From July 1992 to July 1994, Ms. Gray-Smith
served as Vice President and Chief Financial Officer of Worldtalk Corporation, a
messaging integration software company, and from July 1988 to June 1992 she
served as Controller of Power Up Software Corporation, a software development
company. Ms. Gray-Smith, a certified public accountant, previously served as a
principal (senior manager) of Arthur Young & Company, an accounting firm and
predecessor of Ernst & Young LLP. Ms. Gray-Smith has indicated her intention to
resign as Vice President, Finance and Assistant Secretary effective November 30,
1997, but will continue as an employee of the Company until January 1998.

PETER J. LANGECKER, M.D., PH.D., Vice President, Clinical Affairs, joined
the Company in July 1997. From July 1995 to July 1997, Dr. Langecker served as
Vice President, Clinical Research of Coulter Pharmaceutical, Inc., a
biotechnology company, and from March 1992 to July 1995, he served as Director,
Clinical Research, Oncology of Schering-Plough Corp., an international
pharmaceutical company. Subsequent to receiving his Medical Degree in 1984 and
his Doctorate Degree in 1988 from the University of Munich, Dr. Langecker joined
CIBA-GEIGY AG, an international pharmaceutical company, where he served as
General Medical Advisor until February 1992.

LAURA K. SHAWVER, PH.D., Vice President, Preclinical and Pharmaceutical
Development, joined the Company in June 1992. From August 1989 to June 1992, Dr.
Shawver held several positions at Berlex Biosciences, a pharmaceutical company,
most recently as Director of Cell Biology and Immunology. Dr. Shawver also
served as a research associate in the Department of Hematology and Oncology at
the Jewish Hospital at Washington University from 1986 to August 1989. Dr.
Shawver received her Ph.D. in Pharmacology from the University of Iowa and
completed her postdoctoral fellowship in the Department of Microbiology at the
University of Virginia.

SUSAN M. KANAYA, Treasurer, joined the Company in December 1994 and has been
an officer of the Company since October 1997. From March 1990 to May 1993, Ms.
Kanaya was employed by Power Up Software Corporation, a software development
company, serving as Accounting Manager until June 1992, then as Controller until
May 1993. From July 1993 to July 1994, she served as Controller of 50/50 Micro
Electronics, Inc., a semi-conductor company, and from July 1994 to September
1994 as Business Manager of Viacom/ Paramount New Media, a software development
company. Ms. Kanaya also previously served as a Supervising Senior Accountant of
KPMG Peat Marwick.

RICHARD D. SPIZZIRRI has served as a director of the Company since December
1991 and as Secretary since May 1992. Mr. Spizzirri was a partner at the law
firm of Davis Polk & Wardwell from 1967 to December 1994, when he retired. He
continues to serve as senior counsel to Davis Polk & Wardwell and as a director
of Centocor, Inc. and Stuart Entertainment, Inc.

47
<PAGE>
JEREMY L. CURNOCK COOK was appointed as a director of the Company in
December 1996. Mr. Curnock Cook has been Head of the Rothschild Bioscience Unit
and a director of Rothschild Asset Management Limited since 1987. He is director
of several British companies, including International Biotechnology Trust plc,
Biocompatibles International plc, Therexsys Ltd. and Vanguard Medica Group plc.
He also serves on the Boards of Directors of Cell Therapeutics, Inc., Creative
Biomolecules, Inc., Targeted Genetics Corp. and Ribozyme Pharmaceuticals, Inc.
in the United States.

CHARLES M. HARTMAN has served as a director of the Company since December
1991. He has been a general partner of CW Group, a venture capital partnership,
since 1983. He is a director of Ribozyme Pharmaceuticals, Inc., Geron
Corporation and several privately-held life sciences companies as well as The
Hastings Center, a nonprofit organization dedicated to the study of ethics in
medicine and life sciences.

HEINRICH KUHN has served as a director of the Company since December 1991.
Since 1979 he has served as Managing Director of Garching Innovation GmbH, the
technology transfer agency of the Max-Planck Society.

DONALD E. NICKELSON has served as a director of the Company since October
1992. Mr. Nickelson served as President of PaineWebber Group, a brokerage
service and investment banking company, from 1988 until retiring in 1990. He
also served as a director of PaineWebber Group from 1980 until 1993. Mr.
Nickelson serves as Vice-Chairman and Director of Harbour Group Industries,
Inc., and as Chairman of the Board of Greenfield Industries, Inc., Omniquip
International, Inc., Del Industries and Rapid Rack Industries. He also serves as
Director of DT Industries, Inc., Allied Healthcare Products, Inc. and also as a
Trustee of the Mainstay Mutual Funds Group.

BRUCE R. ROSS was appointed as a director of the Company in August 1994.
From 1980 to March 1994 when he retired, Mr. Ross held various senior management
positions with Bristol-Myers Squibb, an international pharmaceutical company,
including Vice President, Bristol-Myers Oncology Division, President, U.S.
Pharmaceutical Group and Senior Vice President, Policy, Planning & Development.
Mr. Ross is currently the President of Cancer Rx and currently serves as a
director of IDEC Corp. and the Fox Chase Cancer Center.

GLENN S. UTT, JR. has served as a director of the Company since December
1991. From 1962 to 1983 when Mr. Utt retired, he served as Executive Vice
President of Abbott Laboratories, Inc., a hospital, laboratory and diagnostic
products company, President of its Pharmaceutical Division and as a member of
its Board of Directors. Mr. Utt is a director of Nitrate Elimination Co., Inc.
and is the Chairman of Janmar, Inc., Glendon, Inc., Marjan, Inc. and U.P. Hotel
Group, Inc.

MICHAEL A. WALL has served as a director of the Company since December 1991.
From 1979 to 1987, when he retired, Mr. Wall served as Chairman of Centocor,
Inc., and continued to serve as a member of its board of directors until 1993.
He has participated as a founder, director, or manager of over a dozen
technology firms since 1955. Mr. Wall is also a director of Kopin Corporation
and is Chairman of the Board of Directors of Alkermes, Inc.

48
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the ownership
of the Company's Common Stock as of October 15, 1997, by: (i) each director;
(ii) each of the executive officers; (iii) all executive officers and directors
of the Company as a group; and (iv) all those known by the Company to be
beneficial owners of more than five percent of its Common Stock.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
PERCENTAGE(1)
------------------------
<S> <C> <C> <C>
PRIOR TO AFTER
BENEFICIAL OWNERS NUMBER OF SHARES OFFERING OFFERING
- --------------------------------------------------------------------------- ---------------- ----------- -----------
Zeneca Limited............................................................. 2,580,016 19.5% 19.9%(2)
15 Stanhope Gate
London W1Y 6LN
England
International Biotechnology Trust plc...................................... 736,667 5.6 4.8
Five Arrows House
St. Swithin's Lane
London EC4N 8NR
England
Stephen Evans-Freke(3)..................................................... 718,469 5.3 4.6
351 Galveston Drive
Redwood City, CA 94063
Jeremy L. Curnock Cook(4).................................................. 751,667 5.7 4.9
c/o International Biotechnology Trust plc
Five Arrows House
St. Swithin's Lane
London EC4N 8NR
England
Charles M. Hartman(5)...................................................... 442,049 3.3 2.9
Heinrich Kuhn(6)........................................................... 52,666 * *
Donald E. Nickelson(7)..................................................... 50,999 * *
Bruce R. Ross(8)........................................................... 37,000 * *
Richard D. Spizzirri(9).................................................... 272,504 2.1 1.8
Axel Ullrich, Ph.D.(10).................................................... 229,333 1.7 1.5
Glenn S. Utt, Jr.(11)...................................................... 57,000 * *
Michael A. Wall(12)........................................................ 65,721 * *
Sara A. Courtneidge, Ph.D.(13)............................................. 55,624 * *
Christine E. Gray-Smith(14)................................................ 30,225 * *
K. Peter Hirth, Ph.D.(15).................................................. 141,414 1.1 *
Susan M. Kanaya(16)........................................................ 6,457 * *
Peter J. Langecker, M.D., Ph.D............................................. 0 * *
Laura K. Shawver, Ph.D.(17)................................................ 35,947 * *
All executive officers and directors as a group (17 persons) (18).......... 3,179,408 22.9 20.0
</TABLE>

- ------------------------

* Less than one percent.

(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission ("SEC"). Unless otherwise indicated in the footnotes
to this table and subject to community property laws where applicable, the
Company believes that each of the stockholders named in this table has sole
voting and investment power with respect to the shares indicated as
beneficially owned. Applicable percentages are based on 13,248,568

49
<PAGE>

shares of Common Stock outstanding on October 15, 1997 and 15,248,568 shares
of Common Stock outstanding after completion of the Offering, adjusted as
required by rules promulgated by the SEC.

(2) Percent of beneficial ownership after the Offering assumes the purchase of
456,000 shares by Zeneca. See "Underwriting."

(3) Includes (i) 5,333 shares beneficially owned by ITIM Corp., of which Mr.
Evans-Freke is a stockholder and President, (ii) 23,424 shares beneficially
owned by Mr. Evans-Freke as co-trustee of his children's trusts, (iii) 8,271
shares owned by his spouse, (iv) 38,125 shares of Common Stock subject to
repurchase in favor of the Company, and (v) 225,000 shares subject to stock
options exercisable within 60 days of October 15, 1997, of which 160,312 are
subject to a repurchase option in favor of the Company in the event of an
early exercise.

(4) Includes 736,667 shares beneficially owned by International Biotechnology
Trust plc ("IBT") of which Mr. Curnock Cook is a director of Rothschild
Asset Management Limited, the discretionary investment advisor of IBT. Mr.
Curnock Cook disclaims beneficial ownership of the IBT shares except to the
extent of his shareholder interest therein. Also includes 15,000 shares
subject to stock options exercisable within 60 days of October 15, 1997,
13,000 of which would be subject to a repurchase option in favor of the
Company in the event of early exercise.

(5) Includes 306,666 shares owned by CW R&D II (Financial) Fund, L.P. and
105,050 shares owned by CW Ventures II, L.P. Mr. Hartman is a general
partner of CW Partners II, L.P. ("CWP II") and CW Partners III, L.P. ("CWP
III"). CWP II is a general partner of CW R&D II (Financial) Fund, L.P. CWP
III is a general partner of CW Ventures II, L.P. Mr. Hartman disclaims
beneficial ownership of the shares held by such entities except to the
extent of his partnership interests therein. Also includes 17,000 shares
subject to stock options exercisable within 60 days of October 15, 1997, of
which 5,000 are subject to a repurchase option in favor of the Company in
the event of an early exercise.

(6) Includes 27,000 shares subject to stock options exercisable within 60 days
of October 15, 1997, of which 9,375 are subject to a repurchase option in
favor of the Company in the event of an early exercise.

(7) Includes 27,000 shares subject to stock options exercisable within 60 days
of October 15, 1997, of which 5,000 are subject to a repurchase option in
favor of the Company in the event of an early exercise.

(8) Includes 33,000 shares subject to stock options exercisable within 60 days
of October 15, 1997, of which 5,000 are subject to a repurchase option in
favor of the Company in the event of an early exercise.

(9) Includes 17,000 shares subject to stock options exercisable within 60 days
of October 15, 1997, of which 5,000 are subject to a repurchase option in
favor of the Company in the event of an early exercise.

(10) Includes 37,333 shares subject to stock options exercisable within 60 days
of October 15, 1997, of which 9,687 are subject to a repurchase option in
favor of the Company in the event of an early exercise.

(11) Includes 17,000 shares subject to stock options exercisable within 60 days
of October 15, 1997, of which 5,000 are subject to a repurchase option in
favor of the Company in the event of an early exercise.

(12) Includes (i) 6,666 shares registered to Mr. Wall as trustee of his
children's trust account, and (ii) 17,000 shares subject to stock options
exercisable within 60 days of October 15, 1997, of which 5,000 are subject
to a repurchase option in favor of the Company in the event of an early
exercise.

(13) Includes 54,624 shares subject to stock options exercisable within 60 days
of October 15, 1997.

(14) Includes 26,850 shares subject to stock options exercisable within 60 days
of October 15, 1997.

(15) Includes (i) 25,000 shares of Common Stock issued to Dr. Hirth subject to
forfeiture at the option of the Company upon the termination of Dr. Hirth's
employment prior to a specified date, and (ii) 80,645 shares subject to
stock options exercisable within 60 days of October 15, 1997.

(16) Includes 5,078 shares subject to stock options exercisable within 60 days
of October 15, 1997.

(17) Includes 23,482 shares subject to stock options exercisable within 60 days
of October 15, 1997.

(18) Includes shares held by directors and executive officers of the Company,
and entities affiliated with such persons. Also includes 63,125 shares
subject to repurchase or forfeiture in favor of the Company and 655,705
shares subject to stock options held by executive officers and directors
exercisable within 60 days of October 15, 1997, of which 232,061 are subject
to a repurchase option in favor of the Company in the event of early
exercise. See Notes 2 through 17 above.

50
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, Hambrecht
& Quist LLC, Lehman Brothers Inc. and UBS Securities LLC (the "Underwriters"),
have severally agreed to purchase from the Company the following respective
number of shares of Common Stock:

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---------------------------------------------------------------------------------- ----------
<S> <C>
Hambrecht & Quist LLC............................................................. 1,000,000
Lehman Brothers Inc............................................................... 500,000
UBS Securities LLC................................................................ 500,000
----------
Total............................................................................. 2,000,000
----------
----------
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.

The Underwriters propose to offer the Shares directly to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $0.50 per
share. The Underwriters may allow, and such dealers may reallow a concession not
in excess of $0.10 per share to certain other dealers. After the public offering
of the Shares, the offering price and other selling terms may be changed by the
Representatives.

The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock, at the public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each Underwriter will have a
firm commitment to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the above table
bears to the total number of shares of Common Stock offered hereby. The Company
will be obligated, pursuant to the option, to sell shares to the Underwriters to
the extent the option is exercised. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of shares of
Common Stock offered hereby.

The offering of the Shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments that the Underwriters may be required to make in respect thereof.

Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the common stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids or effecting syndicate covering
transactions. A stabilizing bid means the placing of any bid or effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of the
common stock. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the offering. Such transactions may
be effected on the Nasdaq Stock Market, in the over-the-counter market, or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.

Zeneca has indicated to the Company that it intends to purchase 456,000
shares in the Offering at the public offering price.

51
<PAGE>
The Company and the Company's directors, officers and certain stockholders
who beneficially own an aggregate of approximately 6,125,930 shares of Common
Stock have agreed that they will not, without the prior written consent of
Hambrecht & Quist LLC, sell, offer, contract to sell, make any short sale,
pledge, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock or enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences or ownership of Common Stock owned by
them during the 90-day period following the effective date of the registration
statement. Hambrecht and Quist LLC, in its sole discretion, may release any such
shares at any time, without public announcement.

In general, the rules of the Commission will prohibit the Underwriters from
making a market in the Company's Common Stock during the "cooling off" period
immediately preceding the commencement of sales in the offering. The Commission
has, however, adopted exemptions from these rules that permit passive market
making under certain conditions. These rules permit an underwriter to continue
to make a market subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with the offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters, selling group members (if
any) or their respective affiliates intend to engage in passive market making in
the Company's Common Stock during the cooling off period.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Cooley Godward LLP, Palo Alto, California. Brobeck,
Phleger & Harrison LLP, Palo Alto, California, are acting as counsel for the
Underwriters in connection with certain legal matters relating to the shares of
Common Stock offered hereby.

EXPERTS

The financial statements of SUGEN, Inc. at December 31, 1995 and 1996, and
for each of the three years in the period ended December 31, 1996, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.

52
<PAGE>
SUGEN, INC.
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................................................... F-2

Financial Statements:

Balance Sheets........................................................................................... F-3

Statements of Operations................................................................................. F-4

Statement of Stockholders' Equity........................................................................ F-5

Statements of Cash Flows................................................................................. F-6

Notes to Financial Statements............................................................................ F-7
</TABLE>

F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
SUGEN, Inc.

We have audited the accompanying balance sheets of SUGEN, Inc. as of
December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SUGEN, Inc. at December 31,
1995 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.

ERNST & YOUNG LLP

Palo Alto, California
February 7, 1997

F-2
<PAGE>
SUGEN, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
--------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 8,226 $ 24,852 $ 8,185
Short-term investments..................................................... 45,027 31,482 34,679
Accounts receivable........................................................ 288 264 178
Prepaid expenses and other current assets.................................. 746 468 690
--------- ---------- -----------
Total current assets..................................................... 54,287 57,066 43,732
Property and equipment, net.................................................. 4,513 4,095 4,000
Other assets................................................................. 443 775 981
--------- ---------- -----------
$ 59,243 $ 61,936 $ 48,713
--------- ---------- -----------
--------- ---------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... $ 652 $ 852 $ 2,558
Accrued liabilities........................................................ 3,587 7,406 6,789
Deferred revenue........................................................... 6,558 375 375
Capital lease obligations--current portion................................. 1,354 1,835 2,123
--------- ---------- -----------
Total current liabilities................................................ 12,151 10,468 11,845
Capital lease obligations--non-current portion............................... 3,651 2,938 3,226
Commitments
Stockholders' equity:
Preferred stock, $.01 par value; 20,000,000 shares authorized, issuable in
series; 300,000 shares designated as Series A Junior Participating
Preferred Stock; none issued and outstanding............................. -- -- --
Common stock, $.01 par value; 30,000,000 shares authorized; shares issued
and outstanding: 10,634,917, 12,993,450, and 13,117,854 at December 31,
1995 and 1996 and June 30, 1997, respectively............................ 106 130 131
Additional paid-in capital................................................. 81,696 107,990 108,569
Deferred compensation...................................................... (397) (710) (560)
Note receivable from stockholder........................................... -- (883) (883)
Accumulated deficit........................................................ (37,964) (57,997) (73,615)
--------- ---------- -----------
Total stockholders' equity............................................... 43,441 48,530 33,642
--------- ---------- -----------
$ 59,243 $ 61,936 $ 48,713
--------- ---------- -----------
--------- ---------- -----------
</TABLE>

See accompanying notes.

F-3
<PAGE>
SUGEN, INC.

STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------- ----------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Contract revenue (includes amounts from
related party)........................ $ 6,270 $ 13,843 $ 13,650 $ 7,908 $ 2,971
Costs and expenses:
Research and development.............. 17,079 23,226 29,792 14,332 16,576
General and administrative............ 3,106 5,086 5,529 2,967 2,990
------------ ------------ ------------- ------------- -------------
Total costs and expenses............ 20,185 28,312 35,321 17,299 19,566
------------ ------------ ------------- ------------- -------------

Operating loss.......................... (13,915) (14,469) (21,671) (9,391) (16,595)

Other income and expenses:
Interest income....................... 529 1,988 2,481 1,288 1,303
Interest expense...................... (278) (494) (691) (354) (344)
Gain on sale of investment in
Selectide........................... -- 1,006 -- -- --
------------ ------------ ------------- ------------- -------------
Other income, net................... 251 2,500 1,790 934 959
------------ ------------ ------------- ------------- -------------
Net loss................................ $ (13,664) $ (11,969) $ (19,881) $ (8,457) $ (15,636)
------------ ------------ ------------- ------------- -------------
------------ ------------ ------------- ------------- -------------
Net loss per share...................... $ (4.15) $ (1.32) $ (1.81) $ (0.81) $ (1.20)
------------ ------------ ------------- ------------- -------------
------------ ------------ ------------- ------------- -------------
Shares used in computing net loss per
share................................. 3,296,000 9,085,000 10,966,000 10,486,000 13,050,000
------------ ------------ ------------- ------------- -------------
------------ ------------ ------------- ------------- -------------
</TABLE>

See accompanying notes.

F-4
<PAGE>
SUGEN, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------- ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1993.............................. 14,263,943 $ 143 1,462,312 $ 15 $ 25,888
Issuance of Common Stock upon exercise of stock options.... -- -- 115,652 1 75
Issuance of Common Stock for cash in connection with
initial public offering, net of issuance costs of
$2,188................................................... -- -- 2,780,117 28 18,635
Conversion of Preferred Stock into Common Stock in
connection with initial public offering (net of $1 paid
for fractional shares)................................... (14,263,943) (143) 3,803,619 38 104
Deferred compensation related to grant of certain stock
options.................................................. -- -- -- -- 392
Amortization of deferred compensation...................... -- -- -- -- --
Change in net unrealized losses on available-for-sale
securities............................................... -- -- -- -- --
Net loss................................................... -- -- -- -- --
---------- ----- --------- --- -----------
BALANCES AT DECEMBER 31, 1994.............................. -- -- 8,161,700 82 45,094
Issuance of Common Stock upon exercise of stock options and
in connection with an employee stock purchase plan....... -- -- 141,824 1 302
Placement of Common Stock for cash, net of issuance costs
of $450.................................................. -- -- 1,396,875 14 16,299
Issuance of Common Stock for cash to Zeneca, net of
issuance costs of $150................................... -- -- 789,141 8 12,342
Issuance of Common Stock for cash to ASTA Medica, net of
issuance costs of $50.................................... -- -- 431,137 4 8,946
Issuance of Common Stock for services...................... -- -- 15,000 -- 139
Repurchase of Common Stock for cash from Selectide......... -- -- (300,760) (3) (1,426)
Amortization of deferred compensation...................... -- -- -- -- --
Change in net unrealized losses on available-for-sale
securities............................................... -- -- -- -- --
Net loss................................................... -- -- -- -- --
---------- ----- --------- --- -----------
BALANCES AT DECEMBER 31, 1995.............................. -- -- 10,634,917 106 81,696
Issuance of Common Stock upon exercise of stock options and
in connection with an employee stock purchase plan,
net...................................................... -- -- 194,195 2 717
Issuance of Common Stock for cash and note in connection
with the exercise of stock options....................... -- -- 132,333 1 883
Issuance of Common Stock for cash to Allergan, net of
issuance costs of $32.................................... -- -- 191,571 2 3,966
Issuance of Common Stock for cash in connection with the
follow-on public offering, net of offering costs of
$2,133................................................... -- -- 2,070,000 21 22,686
Issuance of Common Stock upon exercise of warrants, net.... -- -- 5,434 -- --
Repurchase of Common Stock for cash from Amgen............. -- -- (235,000) (2) (2,696)
Issuance of warrants for cash to Amgen..................... -- -- -- -- 200
Deferred compensation related to grant of certain stock
options.................................................. -- -- -- -- 538
Amortization of deferred compensation...................... -- -- -- -- --
Change in net unrealized losses on available-for-sale
securities............................................... -- -- -- -- --
Net loss................................................... -- -- -- -- --
---------- ----- --------- --- -----------
BALANCES AT DECEMBER 31, 1996.............................. -- -- 12,993,450 130 107,990
Issuance of Common Stock upon exercise of stock options and
in connection with an employee stock purchase plan, net
(unaudited).............................................. -- -- 124,404 1 579
Amortization of deferred compensation (unaudited).......... -- -- -- -- --
Change in net unrealized losses on available-for-sale
securities (unaudited)................................... -- -- -- -- --
Net loss (unaudited)....................................... -- -- -- -- --
---------- ----- --------- --- -----------
BALANCES AT JUNE 30, 1997 (UNAUDITED)...................... -- $ -- 13,117,854 $ 131 $ 108,569
---------- ----- --------- --- -----------
---------- ----- --------- --- -----------

<CAPTION>
NOTE
RECEIVABLE TOTAL

DEFERRED FROM ACCUMULATED STOCKHOLDERS'

COMPENSATION STOCKHOLDER DEFICIT EQUITY

--------------- ------------- ------------- -------------

<S> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1993.............................. $ (365) $ -- $ (12,451) $ 13,230

Issuance of Common Stock upon exercise of stock options.... -- -- -- 76

Issuance of Common Stock for cash in connection with
initial public offering, net of issuance costs of
$2,188................................................... -- -- -- 18,663

Conversion of Preferred Stock into Common Stock in
connection with initial public offering (net of $1 paid
for fractional shares)................................... -- -- -- (1)

Deferred compensation related to grant of certain stock
options.................................................. (392) -- -- --

Amortization of deferred compensation...................... 170 -- -- 170

Change in net unrealized losses on available-for-sale
securities............................................... -- -- (155) (155)

Net loss................................................... -- -- (13,664) (13,664)

----- ----- ------------- -------------

BALANCES AT DECEMBER 31, 1994.............................. (587) -- (26,270) 18,319

Issuance of Common Stock upon exercise of stock options and
in connection with an employee stock purchase plan....... -- -- -- 303

Placement of Common Stock for cash, net of issuance costs
of $450.................................................. -- -- -- 16,313

Issuance of Common Stock for cash to Zeneca, net of
issuance costs of $150................................... -- -- -- 12,350

Issuance of Common Stock for cash to ASTA Medica, net of
issuance costs of $50.................................... -- -- -- 8,950

Issuance of Common Stock for services...................... -- -- -- 139

Repurchase of Common Stock for cash from Selectide......... -- -- -- (1,429)

Amortization of deferred compensation...................... 190 -- -- 190

Change in net unrealized losses on available-for-sale
securities............................................... -- -- 275 275

Net loss................................................... -- -- (11,969) (11,969)

----- ----- ------------- -------------

BALANCES AT DECEMBER 31, 1995.............................. (397) -- (37,964) 43,441

Issuance of Common Stock upon exercise of stock options and
in connection with an employee stock purchase plan,
net...................................................... -- -- -- 719

Issuance of Common Stock for cash and note in connection
with the exercise of stock options....................... -- (883) -- 1

Issuance of Common Stock for cash to Allergan, net of
issuance costs of $32.................................... -- -- -- 3,968

Issuance of Common Stock for cash in connection with the
follow-on public offering, net of offering costs of
$2,133................................................... -- -- -- 22,707

Issuance of Common Stock upon exercise of warrants, net.... -- -- -- --

Repurchase of Common Stock for cash from Amgen............. -- -- -- (2,698)

Issuance of warrants for cash to Amgen..................... -- 200

Deferred compensation related to grant of certain stock
options.................................................. (538) -- -- --

Amortization of deferred compensation...................... 225 -- -- 225

Change in net unrealized losses on available-for-sale
securities............................................... -- -- (152) (152)

Net loss................................................... -- -- (19,881) (19.881)

----- ----- ------------- -------------

BALANCES AT DECEMBER 31, 1996.............................. (710) (883) (57,997) 48,530

Issuance of Common Stock upon exercise of stock options and
in connection with an employee stock purchase plan, net
(unaudited).............................................. -- -- -- 580

Amortization of deferred compensation (unaudited).......... 150 -- -- 150

Change in net unrealized losses on available-for-sale
securities (unaudited)................................... -- -- 18 18

Net loss (unaudited)....................................... -- -- (15,636) (15,636)

----- ----- ------------- -------------

BALANCES AT JUNE 30, 1997 (UNAUDITED)...................... $ (560) $ (883) $ (73,615) $ 33,642

----- ----- ------------- -------------

</TABLE>

See accompanying notes.

F-5
<PAGE>
SUGEN, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................. $ (13,664) $ (11,969) $ (19,881) $ (8,457) $ (15,636)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 1,009 1,629 2,308 1,080 1,500
Deferred revenue....................................... (395) 1,922 (6,183) (4,942) --
Issuance of Common Stock for services.................. -- 139 -- -- --
Gain on sale of investment in Selectide................ -- (1,006) -- -- --
Changes in operating assets and liabilities:
Accounts receivable.................................. (23) 35 24 76 (291)
Prepaid expenses and other current assets............ (431) (200) 278 123 155
Other assets......................................... (204) (39) (332) (789) (206)
Accounts payable..................................... 296 (420) 200 1,143 1,706
Accrued liabilities.................................. 474 1,996 3,819 1,729 (617)
--------- --------- --------- --------- ---------
Net cash used in operating activities.................... (12,938) (7,913) (19,767) (10,037) (13,389)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments...................... (11,917) (57,118) (27,998) (7,949) (15,394)
Maturities of short-term investments..................... 1,643 15,308 36,973 17,236 9,803
Sales of short-term investments.......................... 998 6,873 4,418 4,418 2,412
Purchases of property and equipment, net................. (1,304) (2,042) (1,665) (666) (1,255)
Proceeds from sale of investment in Selectide............ -- 2,923 -- -- --
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities...... (10,580) (34,056) 11,728 13,039 (4,434)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Common Stock, net.............. 18,738 37,916 27,395 424 580
Repurchase of Common Stock............................... -- (1,429) (2,698) (2,698) --
Proceeds from issuance of warrant........................ -- -- 200 200 --
Proceeds from lease financing of property and
equipment.............................................. 1,580 2,109 1,247 632 1,534
Payments under capital lease obligations................. (491) (1,000) (1,479) (673) (958)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities...... 19,827 37,596 24,665 (2,115) 1,156
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents..... (3,691) (4,373) 16,626 887 (16,667)
Cash and cash equivalents at beginning of period......... 16,290 12,599 8,226 8,226 24,852
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period............... $ 12,599 $ 8,226 $ 24,852 $ 9,113 $ 8,185
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest................. $ 278 $ 494 $ 691 $ 354 $ 344
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Equipment acquired under capital leases.................. $ 1,090 $ 1,059
--------- ---------
--------- ---------
</TABLE>

See accompanying notes.

F-6
<PAGE>
SUGEN, INC.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

SUGEN, Inc. (the "Company"), a Delaware corporation founded in July 1991, is
a biopharmaceutical company focusing on the discovery and development of small
molecule drugs which target specific cellular signal transduction pathways.
Dysfunctional signal transduction pathways have been implicated in diseases such
as cancer and diabetes, as well as in dermatologic, immunologic, cardiovascular
and neurologic disorders. The Company pursues its drug discovery programs
independently and in collaboration with other pharmaceutical companies.

INTERIM FINANCIAL INFORMATION

The financial information at June 30, 1997 and for each of the six-month
periods ended June 30, 1996 and 1997 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the financial position at such date and the
operating results and cash flows for those periods. The results of the Company's
operations for any interim period are not necessarily indicative of the results
of the Company's operations for a full fiscal year.

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The Company considers all highly liquid investments with a maturity from
date of purchase of three months or less to be cash equivalents. All other
liquid investments are classified as short-term investments. The Company limits
its concentration of risk by diversifying its investments among a variety of
industries and issuers.

All debt securities are designated as available-for-sale and are carried at
fair value, with the unrealized gains and losses reported in stockholders'
equity. The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in interest income. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are also included in
interest income. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities are included in
interest income.

REVENUE RECOGNITION

Revenue from collaborative agreements is recorded when earned as defined
under the terms of the agreements. Non-refundable fees received upon contract
signing or terminations are recorded as deferred revenue and recognized as
income when the related start-up or wind-down activities are performed, which is
generally over a twelve month period or less. Non-refundable up-front fees
received for previous research and development work performed are recognized in
full upon contract execution. Periodic research funding payments are recognized
as income when earned. All of the Company's revenue is derived from its
collaborations.

F-7
<PAGE>
SUGEN, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT EXPENSE

Research and development expense consists of independent research and
development costs, the costs associated with work performed under collaborations
and the Company's sponsored funding of research projects performed by others.
Research and development expenses include direct costs and research-related
overhead expenses.

DEPRECIATION AND AMORTIZATION

Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the assets, which are
generally three to five years. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the term of the lease.

STOCK BASED COMPENSATION

The Company generally grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and, accordingly, employs the intrinsic-value method to value stock
option grants.

NET LOSS PER SHARE

Net loss per share is computed using the weighted average number of common
shares outstanding. Common equivalent shares from stock options, convertible
preferred stock, and warrants are excluded from the computation as their effect
is antidilutive, except that through June 30, 1994, pursuant to the Securities
and Exchange Commission Staff Accounting Bulletins, common and common equivalent
shares issued during the 12-month period prior to the initial filing of the
registration statement for the initial public offering at prices substantially
below the public offering price have been included in the calculation as if they
were outstanding (using the treasury stock method and the public offering price
for stock options and warrants and the if-converted method for convertible
preferred stock).

The following pro forma per share data is provided to present the
calculation on a consistent basis for all periods presented. It has been
computed as described above and also gives retroactive effect from the date of
issuance to the conversion of convertible preferred stock which automatically
converted to common shares upon the closing of the Company's initial public
offering in October 1994.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
-------------
<S> <C>
Pro forma net loss per share................................................... $ (2.22)
-------------
-------------
Shares used in computing pro forma net loss per share.......................... 6,143,000
-------------
-------------
</TABLE>

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS
128"). Effective December 31, 1997, the Company will adopt SFAS 128. In
accordance with the Statement, the Company will be required to change the method
currently used to compute earnings per share and restate all prior periods. The
impact of SFAS 128 on the calculation of basic and dilutive earnings per share
is expected to have no impact on the net loss per share previously reported or
to be presented at year end.

F-8
<PAGE>
SUGEN, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. INVESTMENTS

The following is a summary of available-for-sale securities as of December
31 (in thousands):
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1996
------------------------------------- -------------------------------------

<CAPTION>
UNREALIZED ESTIMATED UNREALIZED ESTIMATED
GAINS/ FAIR GAINS/ FAIR
COST (LOSSES) VALUE COST (LOSSES) VALUE
--------- ------------- ----------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
Government agencies................................ $ 20,617 $ 54 $ 20,671 $ 13,348 $ (21) $ 13,327
U.S. corporate notes................................. 19,177 59 19,236 16,409 (8) 16,401
Foreign debt securities.............................. 7,073 8 7,081 1,726 (1) 1,725
U.S. corporate commercial paper...................... 2,689 (1) 2,688 11,534 (2) 11,532
Repurchase agreements................................ 850 -- 850 8,036 -- 8,036
Money market funds, certificates of deposit and
other.............................................. 2,727 -- 2,727 5,313 -- 5,313
--------- --- ----------- --------- --- -----------
$ 53,133 $ 120 $ 53,253 $ 56,366 $ (32) $ 56,334
--------- --- ----------- --------- --- -----------
--------- --- ----------- --------- --- -----------
Amounts included in:
Cash equivalents................................... $ 8,227 $ (1) $ 8,226 $ 24,853 $ (1) $ 24,852
Short-term investments............................. 44,906 121 45,027 31,513 (31) 31,482
--------- --- ----------- --------- --- -----------
$ 53,133 $ 120 $ 53,253 $ 56,366 $ (32) $ 56,334
--------- --- ----------- --------- --- -----------
--------- --- ----------- --------- --- -----------
</TABLE>

The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. However,
the estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange.

As of December 31, 1996 the average portfolio duration was approximately
four months and the longest contractual maturity did not exceed two years. Gross
realized gains and losses were immaterial during 1995 and 1996.

3. INVESTMENT IN SELECTIDE CORPORATION

In 1992, the Company signed a three-year collaborative agreement with
Selectide Corporation ("Selectide"), a privately-held corporation. In connection
with this agreement, the Company issued 300,760 shares of stock for junior
preferred shares of Selectide valued at $1.9 million, which shares represented
approximately 5% of the voting shares of Selectide as of December 31, 1994.

In January 1995, the Company received approximately $2.9 million from the
sale of its 5% ownership in Selectide to Marion Merrell Dow, Inc., resulting in
a gain of approximately $1.0 million. The Company simultaneously repurchased the
300,760 shares of SUGEN Common Stock formerly held by Selectide for
approximately $1.4 million, or $4.75 per share. The net proceeds to the Company
from these transactions was approximately $1.5 million.

F-9
<PAGE>
SUGEN, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31 (in
thousands):

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Leasehold improvements......................................................................... $ 2,731 $ 3,168
Office and computer equipment.................................................................. 1,675 2,320
Laboratory equipment........................................................................... 2,313 2,896
--------- ---------
6,719 8,384
Accumulated depreciation and amortization...................................................... (2,206) (4,289)
--------- ---------
Net property and equipment..................................................................... $ 4,513 $ 4,095
--------- ---------
--------- ---------
</TABLE>

Property and equipment under capital leases amounted to $6.2 million and
$7.5 million as of December 31, 1995 and 1996 with related accumulated
amortization of $1.9 million and $3.9 million, respectively.

5. ACCRUED LIABILITIES

The components of accrued liabilities consist of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
--------- --------- JUNE 30,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued research and development services......................................... $ 1,381 $ 3,724 $ 3,586
Accrued compensation.............................................................. 657 883 962
Accrued professional fees......................................................... 344 524 516
Other............................................................................. 1,204 2,275 1,725
--------- --------- -----------
$ 3,587 $ 7,406 $ 6,789
--------- --------- -----------
--------- --------- -----------
</TABLE>

6. RESEARCH AND DEVELOPMENT COLLABORATION AGREEMENTS

ALLERGAN, INC.

In October 1996, the Company established a research and development
collaboration with Vision Pharmaceuticals L.P., an affiliate of Allergan, Inc.
and Allergan, Inc. (collectively, "Allergan"), to identify, develop and
commercialize novel angiogenesis inhibitors for the treatment of ophthalmic
diseases. The collaboration will also establish a comprehensive effort to
identify and validate signal transduction targets for choroidal and retinal
neovascularization. Allergan will have exclusive rights to all ophthalmic uses
of collaboration products and know-how world-wide. In return, the Company
received a $2.0 million initial payment for past research services, is receiving
annual research funding and expects to receive additional fees upon the
achievement of specified milestones and royalties on any product sales. In
addition, the Company will have the right to contribute to clinical development
costs on each program, thereby earning participation in the North American and
European profits from successful products coming out of such programs over and
above its royalty entitlement. Allergan also purchased 191,571 shares of SUGEN
Common Stock at a price of $20.88 per share and participated in the Company's
October 1996 financing (see Note 9), purchasing an additional 250,000 shares of
Common Stock, thereby increasing its cumulative equity investment in SUGEN to
$7.0 million.

F-10
<PAGE>
SUGEN, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. RESEARCH AND DEVELOPMENT COLLABORATION AGREEMENTS (CONTINUED)
ASTA MEDICA AKTIENGESELLSCHAFT

In December 1995, the Company established an oncology product development
collaboration with ASTA Medica Aktiengesellschaft ("ASTA Medica") to develop,
manufacture and bring to market SUGEN's oncology products based upon the cell
signal transduction targets known as Pan-Her and Raf. The Company received a
$4.0 million technology set-up fee, is receiving additional consideration in the
form of services provided by ASTA Medica pursuant to the collaboration but on
non-collaboration programs and will receive certain milestone payments tied to
the success of the programs and royalty payments on sales in certain
territories. The agreement provides for ASTA Medica to receive exclusive
marketing rights to collaboration products in Greater Europe (including the
former Soviet Union) and South America, subject to royalties to SUGEN. The
Company retains marketing rights in the rest of the world, subject to royalties
payable to ASTA Medica in most circumstances. Additionally, ASTA Medica
purchased 431,137 shares of SUGEN Common Stock for $9.0 million, or $20.88 per
share.

ZENECA LIMITED--RELATED PARTY

In January 1995, the Company established a collaboration with Zeneca Limited
("Zeneca") to pursue the research, development and commercialization of novel
anti-cancer drugs targeting cell-surface receptors and intra-cellular signal
transduction pathways. In connection with this agreement, the Company received
an initial $5.0 million technology set-up fee, is receiving additional cash
payments for annual research funding and will receive certain milestone payments
(which may be offset against royalties over time) tied to the progress of
compounds in the collaboration and royalties on worldwide sales of any
collaboration products. The Company will also have the right to contribute to
clinical development costs on each program, thereby earning participation in the
North American profits from successful products coming out of such programs over
and above its royalty entitlement.

As a part of the collaboration agreement, Zeneca purchased 789,141 shares of
the Company's Common Stock for $12.5 million, or $15.84 per share. This $12.5
million equity investment, combined with Zeneca's $7.5 million participation in
SUGEN's October 1994 initial public offering, increased Zeneca's equity
investment in SUGEN to $20.0 million and brought Zeneca's ownership in the
Company to approximately 20%.

Zeneca participated in the Company's October 1996 and September 1995
financings (see Note 9), purchasing an additional 509,000 and 281,875 shares of
the Company's Common Stock, respectively. These additional investments
maintained Zeneca's ownership level in SUGEN at approximately 20% and increased
its cumulative equity investment in the Company to $29.5 million. Zeneca has
committed not to increase its holdings above this level without the approval of
SUGEN's Board of Directors.

AMGEN INC.

In December 1992, the Company established a research and development
collaboration with Amgen Inc. ("Amgen") to discover and develop therapeutic and
diagnostic products in neurobiology and a subset of hematopoiesis. As part of
this collaboration, Amgen made a $4.0 million equity investment, which converted
into 387,878 shares of the Company's Common Stock at the time of the Company's
initial public offering. For the three-year period ended December 31, 1995, the
Company received approximately $18.1 million of research funding from Amgen.

F-11
<PAGE>
SUGEN, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. RESEARCH AND DEVELOPMENT COLLABORATION AGREEMENTS (CONTINUED)

In January 1996, the Company and Amgen reached an agreement to conclude
their research collaboration one year earlier than originally planned due to
their changed research priorities. Under the terms of this wind-down agreement,
Amgen made a final cash payment to the Company of $2.5 million (of which $1.1
million was advanced in December 1995) and forgave certain advance payments
already made to the Company for future research work which was recorded as
wind-down revenue in 1996. Amgen also granted back to SUGEN exclusive worldwide
rights to 22 propriety signal transduction targets discovered in the course of
the collaboration, subject to royalty payments back to Amgen with respect to
potential future product sales. In addition, in January 1996 the Company
repurchased 235,000 shares of its Common Stock from Amgen at a price of $11.48
per share, thereby reducing Amgen's holdings of the Company's Common Stock to
152,878 shares. Amgen also purchased in January 1996 for $200,000 a seven-year
warrant to purchase 200,000 shares of Common Stock at an exercise price of
$15.50 per share.

7. LEASES

In September 1995, the Company secured a $3.5 million capital lease line to
fund facility improvements and equipment associated with the Company's research,
development and administrative facilities. As of December 31, 1996, the Company
had approximately $663,000 available under this lease line.

The Company leases its office and laboratory facilities under operating
leases through 1998 having renewal options ranging from three to five years.
Rent expense for this and other operating leases amounted to $1.1 million, $1.4
million and $1.6 million for 1994, 1995 and 1996, respectively.

Future minimum payments under capital and operating leases at December 31,
1996 are as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL
LEASES OPERATING LEASES
------------- -----------------
<S> <C> <C>
Year ended December 31:
1997.......................................................................... $ 2,414 $ 1,531
1998.......................................................................... 1,969 1,198
1999.......................................................................... 1,048 21
2000.......................................................................... 378 --
------------- ------
Total minimum lease payments.................................................. 5,809 $ 2,750
------------- ------
------
Amount representing interest.................................................. (1,036)
-------------
Present value of minimum lease payments....................................... 4,773
Less current portion.......................................................... (1,835)
-------------
Non-current portion........................................................... $ 2,938
-------------
-------------
</TABLE>

8. COMMITMENTS UNDER RESEARCH AND DEVELOPMENT PROGRAMS

The Company from time to time enters into license and research agreements
whereby the Company funds research projects performed by others or in-licenses
compounds from third parties. Some of the agreements may require the Company to
make milestone and royalty payments.

Under these programs, commitments for research funding are approximately
$2.3 million in 1997. A number of these agreements expire in late 1997; however,
the Company anticipates renewing these agreements

F-12
<PAGE>
SUGEN, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. COMMITMENTS UNDER RESEARCH AND DEVELOPMENT PROGRAMS (CONTINUED)
which will increase the future commitments of the Company. Most of these
commitments are cancelable within a three to six month period and limit the
amounts payable by the Company for sponsored research under the programs after
notice of cancellation. Related research and development expenses under these
programs were $3.7 million, $4.2 million and $3.5 million for 1994, 1995 and
1996, respectively.

9. STOCKHOLDERS' EQUITY

PREFERRED SHARE PURCHASE RIGHTS PLAN

In July 1995, the Board of Directors approved a Preferred Share Purchase
Rights Plan (the "Rights Plan"). The Rights Plan provides for the distribution
of a preferred stock purchase right as a dividend for each share of the
Company's Common Stock. This right entitles stockholders to purchase stock in
the Company or in an acquirer of the Company at a discounted price in the event
of certain hostile efforts to acquire control of the Company. The rights may
only be exercised, if at all, until the earlier of July 31, 2000, or the
occurrence of certain events, and may be redeemed by the Company. At December
31, 1996, the rights were not exercisable.

In connection with the Rights Plan, 300,000 shares of the authorized
Preferred Stock were designated as Series A Junior Participating Preferred Stock
("Junior Preferred Stock"), of which one share is equivalent to 100 shares of
Common Stock. Each share of Junior Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the stockholders and
shall rank, with respect to the payment of dividends and the distribution of
assets, junior to all series of any other class of the Company's Preferred
Stock. Subject to the rights of the holders of any shares of Preferred Stock
with respect to dividends, the holders of shares of Junior Preferred Stock, in
preference to the holders of Common Stock, shall be entitled to receive, when,
as and if declared by the Board of Directors quarterly dividends. As of December
31, 1996, no dividends had been declared and no shares were outstanding.

COMMON STOCK

In October and November 1994, the Company completed its initial public
offering of 2,780,117 shares of Common Stock. The net proceeds to the Company
were approximately $18.7 million. Upon effectiveness of the registration
statement relating to the offering, all of the Preferred Stock outstanding
automatically converted into 3,803,619 shares of Common Stock.

In September 1995, the Company sold 1,396,875 shares of its Common Stock at
a price of $12.00 per share, resulting in net proceeds of approximately $16.3
million.

In October and November 1996, the Company completed a follow-on public
offering of 2,070,000 shares of Common Stock at a price of $12.00 per share. The
net proceeds to the Company were approximately $22.7 million.

The total number of shares of Common Stock outstanding was 12,993,450 as of
December 31, 1996, of which 76,874 were subject to repurchase. At December 31,
1996, the Company has reserved 3,021,660 shares of Common Stock for issuance
upon exercise of warrants and options and 136,188 common shares for issuance
under the Employee Stock Purchase Plan.

F-13
<PAGE>
SUGEN, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS

The following warrants to purchase shares of common stock were issued in
connection with various license and equipment lease financing arrangements (see
Note 6):

<TABLE>
<CAPTION>
WARRANTS OUTSTANDING AT DECEMBER 31, 1996
- ---------------------------------------------------------
<C> <C> <C> <S>
NUMBER OF PRICE PER AGGREGATE
SHARES SHARE PRICE EXPIRATION DATE
- ----------- ----------- ------------ -----------------
200,000 $ 15.50 $ 3,100,000 January 2003
133,333 11.25 1,499,996 July 1997
40,000 3.75 150,000 December 1999
36,847 10.31 379,985 July 2000
13,598 12.87 175,006 December 2001
7,200 11.25 81,000 December 1999
2,666 4.69 12,497 December 2001
</TABLE>

NOTE RECEIVABLE FROM STOCKHOLDER

In August 1996, an officer of the Company exercised options to purchase
132,333 shares of Common Stock at prices ranging from $6.00 to $7.50 per share.
As consideration for the purchase, the officer issued a full recourse Promissory
Note (the "Stockholder Note") to the Company. The Stockholder Note bears
interest of 6.84% per annum and is due and payable on August 29, 2001. However,
in the event that the officer's continuous status as an employee, director or
consultant with the Company is terminated for any reason prior to the payment in
full of the Stockholder Note, the Stockholder Note shall be accelerated and all
remaining unpaid principal and interest shall become due and payable on the 90th
day following such termination. In addition, the officer has pledged the shares
purchased with this Stockholder Note as collateral.

10. STOCK OPTION AND PURCHASE PLANS

EMPLOYEE STOCK PURCHASE PLAN

In April 1994, the Company adopted an Employee Stock Purchase Plan (the
"ESPP") under which 200,000 shares of Common Stock were reserved for issuance.
All employees of the Company, except those having a 5% or greater ownership
stake in the Company, are eligible to participate in the ESPP provided that on
the first day of an offering period they have been employed by the Company for
at least 30 days and are customarily employed by the Company at least twenty
hours per week and at least five months per calendar year. Offerings will
generally be for six months, with the purchase price per share equal to the
lower of 85% of the market value on the date granted (the beginning of the
offering period) or on the date purchased. The next offering period ends on
March 31, 1997. As of December 31, 1996, 63,812 shares had been issued under the
ESPP.

1992 STOCK OPTION PLAN

The 1992 Stock Option Plan (the "Plan") provides for the grant of options to
purchase shares of Common Stock to employees, including officers, directors, and
consultants, upon terms determined by the Board of Directors. The options
granted under this Plan may be either incentive stock options or nonstatutory
stock options. As of December 31, 1996, an aggregate of 2.75 million shares of
Common Stock had been reserved for issuance under this Plan, of which 650,000
shares are subject to stockholders' approval.

F-14
<PAGE>
SUGEN, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
Options granted under this Plan expire no later than ten years from the date
of grant. The option price shall be at least 100% of the fair market value on
the date of grant for incentive stock options. Nonstatutory options, may be
granted as low as 85% of the fair market value on the date of grant. The options
generally become exercisable over a period of four years from the date of grant.
Options may be granted with different vesting terms from time to time as
approved by the Board of Directors. The Plan has been amended to provide for
automatic vesting of options granted upon a change of control, as defined.

As of December 31, 1996, options to purchase 681,096 shares of Common Stock
were exercisable, of which 109,929 shares would be subject to repurchase if all
were exercised.

Through December 31, 1994, the Company recorded deferred compensation
expense for the difference between the exercise price and the deemed fair value
for financial statement presentation purposes of the Company's Common Stock for
certain options granted in 1993 and 1994. This deferred compensation expense
aggregated $757,000 and is being amortized over the related vesting period.

1994 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

In April 1994, the Board of Directors approved the 1994 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan") to provide for the
automatic grant of options to purchase shares of Common Stock to each person who
is elected as a director of the Company and who is not otherwise employed by the
Company (a "Non-Employee Director").

Options granted under the Directors' Plan to Non-Employee Directors upon
their initial election to the Board will vest and be exercisable in five equal
annual installments commencing on the date one year after the date of the grant.
Vesting is contingent upon the continuous service of the director. The
Directors' Plan has been amended to provide for automatic vesting of options
granted upon a change of control, as defined. Options granted annually to
existing Non-Employee Directors vest in full on the date ten days prior to the
date of the first annual meeting of stockholders of the Company subsequent to
the date of the grant. The exercise price of options granted under the
Directors' Plan must equal or exceed the fair market value of the Common Stock
on the date of grant. Under this plan, 230,000 shares of Common Stock have been
reserved for issuance. As of December 31, 1996, options for 128,000 shares had
been issued and were outstanding, of which 122,000 and 61,000 shares were
exercisable and subject to repurchase if exercised, respectively.

LONG-TERM OBJECTIVES STOCK OPTION PLAN FOR SENIOR MANAGEMENT

In July 1995, the Board of Directors adopted the Long-Term Objectives Stock
Option Plan for Senior Management (the "Long-Term Plan"). The Long-Term Plan
provides for the grant of options to purchase shares of Common Stock to certain
senior officers, upon terms determined by the Board of Directors. The options
granted under this Plan may be either incentive stock options or nonstatutory
stock options. Options granted under this Plan expire no later than ten years
from the date of grant. The option price shall be at least 100% of the fair
market value on the date of grant for incentive stock options. Under this plan,
270,000 shares of Common Stock have been authorized for issuance.

In August 1996, the Company amended the terms of the then outstanding
options on 180,000 shares of Common Stock to modify the vesting provisions. The
amendment resulted in $538,000 of deferred compensation which will be amortized
over the remaining vesting period of approximately five years, or such shorter
period as described below. The options, as amended in August 1996, vest over a
period of approximately six

F-15
<PAGE>
SUGEN, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
years, but may be fully or partially accelerated if, in the opinion of the Board
of Directors, certain specific performance objectives are met by December 31,
1997.

As of December 31, 1996, options for 180,000 shares were outstanding, of
which 135,000 shares and 128,250 shares were exercisable and subject to
repurchase if exercised, respectively.

ACCOUNTING FOR STOCK BASED COMPENSATION

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
requires the use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, when the exercise price of the
Company's employee stock options generally equals the market price of the
underlying stock on the date of grant, generally no compensation expense is
recognized.

Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to December 31, 1994 under the fair value method of that Statement. The fair
value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996, respectively: risk-free interest rates of 5.7%
and 5.9%; dividend yields of 0%; volatility factors of the expected market price
of the Company's Common Stock of .57; and a weighted-average expected life of
the option of 3 years.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different than those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information for the years ended December 31 follows:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Pro forma net loss (in thousands)...................................... $ (12,846) $ (21,813)
--------- ---------
--------- ---------
Pro forma net loss per share........................................... $ (1.41) $ (1.99)
--------- ---------
--------- ---------
</TABLE>

The weighted average fair value of options granted during 1995 and 1996 was
$3.55 and $5.39, respectively. Because FAS 123 is applicable only to options
granted subsequent to December 31, 1994, its pro forma effect will not be fully
reflected until 1997.

F-16
<PAGE>
SUGEN, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

10. STOCK OPTION AND PURCHASE PLANS (CONTINUED)
A summary of the Company's stock option activity under the Company's option
plans which include the 1992 Stock Option Plan, the 1994 Non-Employee Directors'
Plan and the Long-Term Objectives Stock Option Plan for Senior Management is as
follows:

<TABLE>
<CAPTION>
OUTSTANDING STOCK
OPTIONS
-----------------------
<S> <C> <C> <C>
SHARES WEIGHTED
AVAILABLE AVERAGE
FOR GRANT OF NUMBER OF PRICE PER
OPTIONS SHARES SHARE
------------ ---------- -----------
Balances at December 31, 1993............................................... 155,516 515,485 $ 0.83
Shares authorized........................................................... 500,000 -- --
Options granted............................................................. (413,703) 413,703 5.06
Options exercised........................................................... -- (115,652) 0.66
Options forfeited........................................................... 29,614 (29,614) 1.02
------------ ----------
Balances at December 31, 1994............................................... 271,427 783,922 3.08
Shares authorized........................................................... 1,300,000 -- --
Options granted............................................................. (1,131,137) 1,131,137 8.31
Options exercised........................................................... -- (112,261) 1.22
Options forfeited........................................................... 16,370 (16,370) 5.11
------------ ----------
Balances at December 31, 1995............................................... 456,660 1,786,428 6.49
Shares authorized........................................................... 650,000 -- --
Options granted............................................................. (652,066) 652,066 12.08
Options exercised........................................................... -- (305,072) 4.60
Options forfeited........................................................... 235,559 (235,559) 7.85
------------ ----------
Balances at December 31, 1996............................................... 690,153 1,897,863 $ 8.54
------------ ----------
------------ ----------
</TABLE>

The following table summarizes information concerning currently outstanding
options:

<TABLE>
<CAPTION>
EXERCISABLE STOCK
OUTSTANDING STOCK OPTIONS OPTIONS
---------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER OF PRICE PER
PRICES OF SHARES LIFE PRICE SHARES SHARE
- ----------------- ---------- --------------- ----------- ----------- -----------
$0.38--$2.44 262,778 6.6 $ 1.35 201,593 $ 1.24
5.00--5.75 56,929 8.3 5.38 34,882 5.50
6.00--8.13 626,644 7.3 6.96 444,606 7.14
9.67--11.88 752,192 9.2 11.30 195,481 11.46
12.00--15.00 199,320 9.1 13.49 61,534 13.55
---------- -----------
$0.38--$15.00 1,897,863 8.2 $ 8.54 938,096 $ 7.13
---------- -----------
---------- -----------
</TABLE>

F-17
<PAGE>
SUGEN, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

11. INCOME TAXES

As of December 31, 1996, the Company had federal net operating loss
carryforwards of approximately $55 million. The federal net operating loss
carryforwards will expire at various dates beginning on 2006 through 2011.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes.

Significant components of the Company's deferred tax assets for federal and
state income taxes as of December 31 are as follows (in thousands):

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Net operating loss carryforwards........................................ $ 10,300 $ 19,300
Research credits (expires 2006-2011).................................... 1,500 2,100
Capitalized R&D......................................................... 600 1,100
Deferred revenue........................................................ 800 200
Other--net.............................................................. 2,300 800
--------- ---------
Total deferred tax assets............................................... 15,500 23,500
Valuation allowance for deferred tax assets............................. (15,500) (23,500)
--------- ---------
Net deferred tax assets................................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>

Due to the Company's history of losses, the deferred tax assets have been
fully offset by a valuation allowance. The valuation allowance increased by $5.4
million and $5.1 million during 1994 and 1995, respectively.

Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change provisions of the
Internal Revenue Code of 1986. The annual limitation may result in the
expiration of net operating losses and credits before utilization.

12. RELATED PARTY TRANSACTIONS

In 1992, the Company entered into a collaboration and licensing agreement
with Selectide. The Chairman of the Board of Directors and Chief Executive
Officer of the Company was also the Chairman of the Board of Directors of
Selectide (see Note 3).

In 1995, the Company entered into a collaboration agreement with Zeneca (see
Note 6). As of December 31, 1996, Zeneca owned approximately 20% of the
Company's outstanding Common Stock.

In 1996, the Company made a $100,000 investment in a China joint venture.
The Chairman of the Board of Directors and Chief Executive Officer of the
Company is also the Chairman and a director of the China joint venture.

In January 1996, the Company entered into a license agreement with Zeneca
for the dermatological use of a synthetic small molecule inhibitor. In
connection with the Company's filing of an Investigational New Drug application
("IND") with the Food and Drug Administration ("FDA") for the clinical testing
of this compound, SU5271, the Company paid Zeneca $200,000.

In connection with the resignation of an officer in June 1996, the Company
recorded approximately $500,000 in connection with the forgiveness of loans and
salary continuation.

F-18
<PAGE>
SUGEN, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

12. RELATED PARTY TRANSACTIONS (CONTINUED)
In August 1996, an officer and director of the Company exercised options to
purchase 132,333 shares of Common Stock (see Note 9). As consideration for the
purchase of these shares and related tax liability upon the exercise of the
options, the officer issued a full recourse promissory note in the amount of
$1.1 million to the Company, of which approximately $883,000 is included in
stockholders' equity. In addition, the Company provided secured loans to certain
key employees and officers to assist in the down payments for the purchase of
their personal residences, all of which are forgivable after specified years of
employment. Included in Other Assets are approximately $330,000 of loans
receivable from certain key employees and officers at December 31, 1996.

13. EVENTS SUBSEQUENT TO DECEMBER 31, 1996 (UNAUDITED)

LEASE FINANCING

In March 1997, the Company secured an additional capital lease line in the
amount of $3.5 million for the purchase of equipment and facilities
improvements. At June 30, 1997, the Company had $2.6 million available under
this line.

In November 1997, the Company entered into a commitment for an additional
capital lease line in the amount of $5.0 million for the purchase of equipment
and facilities improvements.

FACILITY LEASE AGREEMENT

DEBT OFFERING

In September 1997, the Company completed the sale of $17.5 million principal
amount of 5% Senior Custom Convertible Notes due 2000 (the "Notes"). The Notes
were sold at par, mature on September 12, 2000 and bear interest at a rate of 5%
per annum (payable in Common Stock or cash, at the Company's option). Beginning
on December 11, 1997, the Notes may be converted, together with accrued and
unpaid interest and subject to certain limitations, into shares of Common Stock
at a conversion price equal to the average of the two lowest trade prices of the
Common Stock during the 20 trading days immediately preceding the date of
conversion (the "Conversion Price"). Beginning January 19, 1998, the Conversion
Price may not exceed 115% of the average closing bid price of the Common Stock
for the 20 trading days immediately preceding such date. In connection with the
issuance of the Notes, the Company issued warrants to purchase up to 332,500
shares of Common Stock at an exercise price of $16.74 per share. Cash and
non-cash issuance costs (including the fair value of the warrants) totalled
approximately $2.6 million and are recorded as deferred expenses to be amortized
to expense over the term of the Notes. No purchaser of the Notes will be allowed
to convert Notes and/or warrants which would result in such person owning more
than 4.9% of the then outstanding Common Stock.

F-19
<PAGE>
- ------------------------------------------------
------------------------------------------------
- ------------------------------------------------
------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

--------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information...................... 2
Information Incorporated by Reference...... 2
Prospectus Summary......................... 3
Risk Factors............................... 6
Forward Looking Statements................. 16
Use of Proceeds............................ 17
Price Range of Common Stock................ 17
Dividend Policy............................ 17
Capitalization............................. 18
Dilution................................... 19
Selected Financial Data.................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 21
Business................................... 26
Management................................. 46
Principal Stockholders..................... 49
Underwriting............................... 51
Legal Matters.............................. 52
Experts.................................... 52
Index to Financial Statements.............. F-1
</TABLE>

2,000,000 SHARES

[LOGO]

COMMON STOCK

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PROSPECTUS
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HAMBRECHT & QUIST

LEHMAN BROTHERS

UBS SECURITIES

NOVEMBER 7, 1997

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