SUGEN INC, 424B3, 1997-11-06

SUGEN INC
424B3, 1997-11-06
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

Previous: METROCALL INC, S-4/A, 1997-11-06

Next: ARBOR HEALTH CARE CO /DE/, 10-Q, 1997-11-06

<PAGE>
PROSPECTUS

1,780,000 SHARES

SUGEN, INC.

COMMON STOCK
------------------

This Prospectus relates to the offer and sale by certain persons listed
herein under "Selling Stockholders" (collectively, the "Selling Stockholders")
of (i) a maximum of 1,780,000 shares (collectively, together with the shares
referred to in clause (ii) of this sentence, the "Shares") of Common Stock, par
value $0.01 per share (the "Common Stock"), of SUGEN, Inc. (the "Company")
consisting of: (a) up to 1,258,500 shares of Common Stock to be issued from time
to time to the Selling Stockholders upon conversion of the Company's 5% Senior
Custom Convertible Notes due 2000 (the "Notes"), (b) up to 189,000 shares of
Common Stock to be issued and paid in lieu of cash, at the Company's option, as
interest on the Notes, (c) up to 262,500 shares of Common Stock to be issued
upon exercise of Common Stock Purchase Warrants (the "Warrants"), (d) up to
70,000 shares of Common Stock to be issued upon exercise of warrants issued in
connection with placement agent fees (the "Placement Fee Warrants"), and (ii) in
accordance with Rule 416 under the Securities Act of 1933, as amended (the
"Securities Act"), such presently indeterminate number of additional shares as
may be issuable upon conversion of the Notes or payment of interest on the
Notes, based upon fluctuations in the conversion price of the Notes. All of the
Shares may be offered by the Selling Stockholders or by pledgees, donees,
transferees or other successors in interest that receive such Shares as a gift,
partnership distribution or other non-sale related transfer. The Notes, the
Warrants, the Placement Fee Warrants and the Common Stock issuable upon
conversion or exercise thereof or in payment of interest on the Notes have been
and will be issued in transactions exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) thereof. See "Recent Developments,"
"Selling Stockholders" and "Plan of Distribution." The Shares are being
registered by the Company pursuant to registration rights granted to the Selling
Stockholders.

The Selling Stockholders have not advised the Company of any specific plans
for the distribution of the Shares covered by this Prospectus. It is
anticipated, however, that the Shares will be offered and sold by the Selling
Stockholders from time to time in transactions on the Nasdaq National Market, in
privately negotiated transactions, or by a combination of such methods of sale,
at such fixed prices as may be negotiated from time to time, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Stockholders may effect such
transactions by selling the Shares to or through broker-dealers and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Stockholders or the purchasers of the Shares for
whom such broker-dealers may act as agent or to whom they sell as principal or
both (which compensation to a particular broker-dealer might be in excess of
customary commissions). See "Plan of Distribution."

The Company will not receive any of the proceeds from the sale of the Shares
by the Selling Stockholders. The Company has agreed to bear certain expenses in
connection with the registration and sale of the Shares being offered by the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain liabilities, including liabilities under the
Securities Act.

The Common Stock of the Company is traded on the Nasdaq National Market
under the symbol "SUGN." On October 23, 1997, the last sale price for the Common
Stock as quoted on the Nasdaq National Market was $17.25 per share.

The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Plan of Distribution" herein for a description of
agreements by the Company to indemnify the Selling Stockholders against certain
liabilities.
--------------------------

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" 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.

THE DATE OF THIS PROSPECTUS IS OCTOBER 24, 1997
<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, any Selling
Stockholders or by any other person. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities other than the
shares of Common Stock offered hereby, nor does it constitute an offer to sell
or a solicitation of an offer to buy any of the shares offered hereby to any
person in any jurisdiction in which such offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall under any circumstances create any implication that the information
contained herein is correct as of any date subsequent to the date hereof.

AVAILABLE INFORMATION

This Prospectus, which constitutes a part of a Registration Statement on
Form S-3 (the "Registration Statement") filed by the Company with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), omits certain of the information set forth in
the Registration Statement. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement, exhibits and schedules. Statements contained in this
Prospectus regarding the contents of any contract or other document are not
necessarily complete; with respect to each such contract or document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. A copy of the
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities of the Commission
described below, and copies of such material may be obtained from such office
upon payment of the fees prescribed by the Commission.

The Company is subject to the informational 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
Commission. Such reports, proxy statements and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the Commission's Regional
Offices located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of prescribed rates. Furthermore, the Commission maintains a
Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
Such Web site is located at http://www.sec.gov. The Company's Common Stock is
quoted on the Nasdaq National Market. Reports, proxy statements and other
information concerning the Company may be inspected at the National Association
of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission are hereby
incorporated herein by reference:

1. The Company's Annual Report on Form 10-K for the year ended December 31,
1996;

2. The Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997;

3. The Company's 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;

1
<PAGE>
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 contained in its Registration
Statement on Form 8-A filed with the Commission on September 13, 1994,
including any amendments or reports filed for the purpose of updating such
description.

All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of
this Prospectus and prior to the filing of a post-effective amendment which
indicates that all securities offered hereby have been sold or which deregisters
all securities remaining unsold, shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such reports and
documents. Any statement contained in a document incorporated by reference
herein shall be deemed modified or superseded for purposes of this Prospectus to
the extent that a statement contained or 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.

The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the information that has been or may be incorporated by reference
in this Prospectus, other than exhibits to such documents (unless such exhibits
are specifically incorporated by reference into such documents). Such requests
should be directed to SUGEN, Inc., 351 Galveston Drive, Redwood City, California
94063, telephone (650) 306-7700, Attn: Corporate Communications and Investor
Relations.

2
<PAGE>
THE FOLLOWING INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL DATA, INCLUDING "RISK FACTORS," APPEARING ELSEWHERE IN
THIS PROSPECTUS, AND IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. IN
ADDITION TO HISTORICAL INFORMATION CONTAINED HEREIN, THIS PROSPECTUS CONTAINS
WORDS SUCH AS "INTENDS," "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS" AND
SIMILAR EXPRESSIONS WHICH ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES. READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE
HEREOF. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS."

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>
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.

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.

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.

RECENT DEVELOPMENTS

NOTE PLACEMENT

The Shares being registered represent shares underlying $17,500,000 of the
Notes issued on September 12, 1997 by the Company to the Selling Stockholders
pursuant to and in connection with the several Note Purchase Agreements dated as
of September 8, 1997. The Notes were sold at par, mature on September 12, 2000
and bear interest at a rate of 5% per annum. Interest on the Notes, which is
payable in arrears on the fifteenth day of each November, February, May and
August, may be paid in Common Stock or in cash at the option of the Company. The
Notes, which will not be convertible for 89 days after their issuance date, can
thereafter 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 as reported on
Nasdaq for the 20 trading days immediately preceding the conversion date (the
"Conversion Price"). Starting January 19, 1998 (the "Fixed Conversion Date"),
the Conversion Price may not exceed 115% of the average closing bid price of the
Common Stock for the 20 trading days immediately preceding the Fixed Conversion
Date. A Selling Stockholder will not

4
<PAGE>
be permitted at anytime to convert in excess of the principal amount of Notes or
exercise Warrants or Placement Fee Warrants which would result in such Selling
Stockholder owning more than 4.9% of the then outstanding Common Stock.

In connection with the private placement of the Notes, the Selling
Stockholders were granted the Warrants to purchase up to 262,500 shares of
Common Stock at an exercise price of $16.74 per share.

Diaz & Altschul Capital, LLC of New York City was placement agent in the
transaction. In consideration for its services as placement agent, the Company
paid Diaz & Altschul Capital, LLC a fee of $875,000 and issued to its designee,
Diaz & Altschul Group, LLC, the Placement Fee Warrants to acquire 70,000 shares
of Common Stock at an exercise price of $16.74 per share.

PROPOSED PUBLIC OFFERING

On October 24, 1997, the Company filed a Registration Statement with respect
to a proposed public offering of up to 2,875,000 shares of Common Stock.

5
<PAGE>
RISK FACTORS

THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. THE FOLLOWING RISK
FACTORS, INHERENT IN AND AFFECTING THE BUSINESS OF THE COMPANY, IN ADDITION TO
THE INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS AND INCORPORATED HEREIN
BY REFERENCE, SHOULD CAREFULLY BE CONSIDERED BEFORE PURCHASING THE SHARES OF
COMMON STOCK OFFERED HEREBY. IN ADDITION TO HISTORICAL INFORMATION CONTAINED
HEREIN, THIS PROSPECTUS CONTAINS WORDS SUCH AS "INTENDS," "BELIEVES,"
"ANTICIPATES," "PLANS," "EXPECTS" AND SIMILAR EXPRESSIONS WHICH ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY'S ACTUAL RESULTS
MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED BELOW.

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, 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 the first half of 1999. 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

6
<PAGE>
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 would have
a material adverse effect on the Company.

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.

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

7
<PAGE>
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.

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

8
<PAGE>
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.

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

9
<PAGE>
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.

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.

10
<PAGE>
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.

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

11
<PAGE>
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 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.

12
<PAGE>
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.

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

13
<PAGE>
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.

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

14
<PAGE>
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 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

15
<PAGE>
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 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. On October 24, 1997, the Company filed a
Registration Statement with respect to a proposed public offering of up to
2,875,000 shares of Common Stock. Assuming completion of the anticipated
offering, all such shares will be freely tradeable.

16
<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.

17
<PAGE>
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 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,

18
<PAGE>
enabling them to recruit their own substrates and thus pass on the signal.
Depending on the specific ligand and receptor, the 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.

19
<PAGE>
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.

20
<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

21
<PAGE>
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.

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

22
<PAGE>
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 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.

23
<PAGE>
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.

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.

24
<PAGE>
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.

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 Max-Planck-Institut fur Physiologische
und Klinische Forschung ("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

25
<PAGE>
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 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

26
<PAGE>
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.

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

27
<PAGE>
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 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 efforts 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

28
<PAGE>
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.

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.

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

29
<PAGE>
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 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.

30
<PAGE>
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.

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.

31
<PAGE>
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 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

32
<PAGE>
proprietary rights relating to products or processes competitive with those of
the Company or which could block the Company's efforts to obtain patents.

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

33
<PAGE>
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.

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

34
<PAGE>
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 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.

35
<PAGE>
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.

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.

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

36
<PAGE>
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."

37
<PAGE>
SELLING STOCKHOLDERS

The following table sets forth certain information, as of the date hereof,
with respect to the number of shares of Common Stock owned by each of the
Selling Stockholders and as adjusted to give effect to the sale of the Shares
offered hereby. The Shares are being registered to permit public secondary
trading of the Shares, and the Selling Stockholders may offer the Shares for
resale from time to time. See "Plan of Distribution."

The Shares being offered hereby by the Selling Stockholders may be acquired,
from time to time, upon (i) the conversion of $17,500,000 aggregate principal
amount of the Notes and exercise of the Warrants and the Placement Fee Warrants,
which were acquired by them from the Company in a private placement transaction
pursuant to those certain Note Purchase Agreements, dated as of September 8,
1997 (the "Agreements"), and pursuant to an Engagement Agreement, dated August
20, 1997, between the Company and Diaz & Altschul Capital, LLC, as placement
agent, and (ii) the payment by the Company of interest on the Notes in the form
of Common Stock in lieu of cash, at the Company's option. This Prospectus covers
the resale by the Selling Stockholders of up to approximately 1,780,000 Shares,
plus, in accordance with Rule 416 under the Securities Act, such presently
indeterminate number of additional Shares as may be issuable upon conversion of
the Notes or payment of interest on the Notes, based upon fluctuations in the
conversion price of the Notes. See "The Company--Recent Developments."

In accordance with registration rights granted to the Selling Stockholders,
the Company has filed with the Commission, under the Securities Act, a
Registration Statement on Form S-3, of which this Prospectus forms a part, with
respect to the resale of the Shares from time to time on the Nasdaq National
Market or in privately-negotiated transactions and has agreed to prepare and
file such amendments and supplements to the Registration Statement as may be
necessary to keep such Registration Statement effective until the Shares are no
longer required to be registered for the sale thereof by the Selling
Stockholders.

The Company has agreed to register a specified number of Shares for resale
by the Selling Stockholders. The number of Shares shown in the following table
as being offered by the Selling Stockholders does not include such presently
indeterminate number of shares of Common Stock as may be issuable upon
conversion of the Notes and payment of interest on the Notes pursuant to the
provisions thereof regarding determination of the applicable conversion price
but which shares are, in accordance with Rule 416 under the Securities Act,
included in the Registration Statement of which this Prospectus forms as part.

The Shares covered by this Prospectus may be offered from time to time by
the Selling Stockholders named below:

<TABLE>
<CAPTION>
OWNERSHIP AFTER
OFFERING(1)
NUMBER OF SHARES NUMBER OF --------------------
OWNED PRIOR TO SHARES BEING NUMBER OF
NAMES OF SELLING STOCKHOLDERS OFFERING(1)(2) OFFERED(3) SHARES PERCENT
- --------------------------------------------- ---------------- ------------ ---------- -------
<S> <C> <C> <C> <C>
ACI/DA Investors I, LLC(4)(7)................ 166,084 166,084 0 0%
Delta Opportunity Fund, Ltd.(5)(7)........... 488,483 488,483 0 0%
Diaz & Altschul Group, LLC(5)(7)(9).......... 70,000 70,000 0 0%
Nelson Partners(6)........................... 211,025 211,025 0 0%
Olympus Securities, Ltd.(6).................. 257,919 257,919 0 0%
Omicron Partners, LP......................... 468,944 468,944 0 0%
OTATO Limited Partnership(7)................. 97,697 97,697 0 0%
Overbrook Fund I, LLC(7)(8).................. 19,539 19,539 0 0%
</TABLE>

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

(1) Pursuant to the terms of the Notes, the Warrants and the Placement Fee
Warrants, no Selling Stockholder can convert any portion of such Selling
Stockholder's Notes if such conversion would increase such Selling
Stockholder's beneficial ownership of the Common Stock (other than shares so
owned through ownership of the Notes, the Warrants and the Placement Fee
Warrants) to in excess of 4.9%.

38
<PAGE>
(2) Represents (i) the number of shares of Common Stock issuable upon conversion
of the Notes calculated using an assumed conversion price of $13.906 with
respect to the face value of the Notes, based upon certain conversion
provisions of the Notes (which price will fluctuate from time to time based
on changes in the market price of the Common Stock), (ii) the number of
shares of Common Stock which may be issued and paid in lieu of cash, at the
Company's option, as interest on the Notes calculated using an assumed per
share price of $13.906 (which price will fluctuate from time to time based
on changes in the market price of the Common Stock) and (iii) the number of
shares of Common Stock issuable upon exercise of the Warrants and the
Placement Fee Warrants at an exercise price of $16.74.

(3) Represents (i) the number of shares of Common Stock issuable upon conversion
of the Notes calculated using an assumed conversion price of $13.906 with
respect to the face value of the Notes, based upon certain conversion
provisions of the Notes (which price will fluctuate from time to time based
on changes in the market price of the Common Stock), (ii) the number of
shares of Common Stock which may be issued and paid in lieu of cash, at the
Company's option, as interest on the Notes calculated using an assumed per
share price of $13.906 (which price will fluctuate from time to time based
on changes in the market price of the Common Stock) and (iii) the number of
shares of Common Stock issuable upon exercise of the Warrants and the
Placement Fee Warrants at an exercise price of $16.74. This Prospectus also
covers the resale of such presently indeterminate number of additional
Shares as may be issuable upon conversion of the Notes or payment of
interest on the Notes, based upon fluctuations in the conversion price of
the Notes.

(4) Diaz & Altschul Advisors, LLC, a New York limited liability company ("D&A
Advisors"), is an advisor to ACI/DA Investors I, LLC ("ACI/DA") and may be
deemed to share beneficial ownership of the Shares beneficially owned by
ACI/DA. D&A Advisors disclaims such beneficial ownership.

(5) D&A Advisors serves as investment advisor to Delta Opportunity Fund, Ltd.
("Delta") and may be deemed to share beneficial ownership of the Shares
beneficially owned by Delta by reason of shared power to dispose of the
Shares beneficially owned by Delta. D&A Advisors is controlled by Diaz &
Altschul Group, LLC ("D&A Group"). D&A Advisors and D&A Group disclaim
beneficial ownership of the Shares beneficially owned by Delta.

(6) Citadel Limited Partnership is the managing general partner of Nelson
Partners ("Nelson"), and the trading manager of Olympus Securities, Ltd.
("Olympus") and consequently has voting control and investment discretion
over securities held by both Nelson and Olympus. The ownership information
for Nelson does not include the Shares owned by Olympus and the ownership
information for Olympus does not include the Shares owned by Nelson.

(7) An affiliate of OTATO Limited Partnership serves as a trading consultant to
ACI/DA, Delta, Overbrook Fund I, LLC ("Overbrook") and D&A Group and may be
deemed to share beneficial ownership of the Shares beneficially owned by
such Selling Stockholders by reason of shared power to dispose of the Shares
beneficially owned by such Selling Stockholders. Such affiliate disclaims
beneficial ownership of such Shares.

(8) Mr. Arthur G. Altschul, Jr., a managing member of D&A Group, also serves as
the managing member of Overbrook. Mr. Altschul may be deemed to share
beneficial ownership of all Shares beneficially owned by Overbrook by reason
of the power to dispose of the Shares beneficially owned by Overbrook. Mr.
Altschul disclaims such beneficial ownership.

(9) Mr. Arthur G. Altschul, Jr., a managing member of D&A Group, served as
Senior Director of Corporate Affairs of the Company until April 1996 and has
served as a Consultant to the Company since May 1996.

39
<PAGE>
PLAN OF DISTRIBUTION

The Company will receive no proceeds from this offering. The Shares offered
hereby may be sold by the Selling Stockholders or by pledgees, donees,
transferees or other successors in interest that receive such shares as a gift,
partnership distribution or other non-sale related transfer. The Shares may be
sold from time to time in transactions on the Nasdaq National Market, in the
over-the-counter market, in negotiated transactions, or a combination of such
methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices related to prevailing market prices or
at negotiated prices. The Selling Stockholders may effect such transactions by
selling the Shares to or through broker-dealers, including block trades in which
brokers or dealers will attempt to sell the Shares as agent but may position and
resell the block as principal to facilitate the transaction, or in one or more
underwritten offerings on a firm commitment or best effort basis. Sales of
Selling Stockholders' Shares may also be made pursuant to Rule 144 under the
Securities Act, where applicable.

To the extent required under the Securities Act, the aggregate amount of
Selling Stockholders' Shares being offered and the terms of the offering, the
names of any such agents, brokers, dealers or underwriters and any applicable
commission with respect to a particular offer will be set forth in an
accompanying Prospectus supplement. Any underwriters, dealers, brokers or agents
participating in the distribution of the Shares may receive compensation in the
form of underwriting discounts, concessions, commissions or fees from a Selling
Stockholder and/or purchasers of Selling Stockholders' Shares, for whom they may
act (which compensation as to a particular broker-dealer might be in excess of
customary commissions).

From time to time, one or more of the Selling Stockholders may pledge,
hypothecate or grant a security interest in some or all of the Shares owned by
them, and the pledgees, secured parties or persons to whom such securities have
been hypothecated shall, upon foreclosure in the event of default, be deemed to
be Selling Stockholders hereunder. In addition, a Selling Stockholder may, from
time to time, sell short the Common Stock of the Company, and in such instances,
this Prospectus may be delivered in connection with such short sales and the
Shares offered hereby may be used to cover such short sales.

From time to time one or more of the Selling Stockholders may transfer,
pledge, donate or assign such Selling Stockholders' Shares to lenders or others
and each of such persons will be deemed to be a "Selling Stockholder" for
purposes of this Prospectus. The number of Selling Stockholders' Shares
beneficially owned by those Selling Stockholders who so transfer, pledge, donate
or assign Selling Stockholders' Shares will decrease as and when they take such
actions. The plan of distribution for Selling Stockholders' Shares sold
hereunder will otherwise remain unchanged, except that the transferees,
pledgees, donees or other successors will be Selling Stockholders hereunder.

A Selling Stockholder may enter into hedging transactions with
broker-dealers and the broker-dealers may engage in short sales of the Common
Stock in the course of hedging the positions they assume with such Selling
Stockholder, including, without limitation, in connection with distributions of
the Common Stock by such broker-dealers. A Selling Stockholder may also enter
into option or other transactions with broker-dealers that involve the delivery
of the Common Stock to the broker-dealers, who may then resell or otherwise
transfer such Common Stock. A Selling Stockholder may also loan or pledge the
Common Stock to a broker-dealer and the broker-dealer may sell the Common Stock
so loaned or upon a default may sell or otherwise transfer the pledged Common
Stock.

In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.

The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of the

40
<PAGE>
Securities Act, and any commissions received by them and any profit on the
resale of the Shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.

Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares may not bid for or purchase shares of
Common Stock during a period which commences one business day (5 business days,
if the Company's public float is less than $25 million or its average daily
trading volume is less than $100,000) prior to such person's participation in
the distribution, subject to exceptions for certain passive market making
activities. In addition and without limiting the foregoing, each Selling
Stockholder will be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder, including, without limitation, Regulation M
which provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by such Selling Stockholder.

The Shares were originally issued to the Selling Stockholders pursuant to an
exemption from the registration requirements of the Securities Act provided by
Section 4(2) thereof. The Company agreed to register the Shares under the
Securities Act and to indemnify and hold the Selling Stockholders harmless
against certain liabilities under the Securities Act that could arise in
connection with the sale by the Selling Stockholders of the Shares. The Company
has agreed to pay all reasonable fees and expenses incident to the filing of
this Registration Statement.

LEGAL MATTERS

The legality of the securities offered hereby will be passed upon for the
Company by Cooley Godward LLP, Palo Alto, California.

EXPERTS

The financial statements of the Company appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such financial statements
are incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

41
<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. 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..................................................... 1
Incorporation of Certain Documents by Reference........................... 1
The Company............................................................... 3
Risk Factors.............................................................. 6
Business.................................................................. 17
Selling Stockholders...................................................... 38
Plan of Distribution...................................................... 40
Legal Matters............................................................. 41
Experts................................................................... 41
</TABLE>

1,780,000 SHARES

SUGEN, INC.

COMMON STOCK

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

PROSPECTUS

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

OCTOBER 24, 1997

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