PHARMACEUTICAL DATA-MINING FIRM OPENS IN SANTA FE, N.M.

A new "mining " company has established itself high atop the Wells Fargo building in downtown Santa Fe with the promise of becoming a billion-dollar operation within the next few years.

"If we get contracts with between five and seven (pharmaceutical companies), that will mean 50 to 80 million dollars in revenues and make the company worth half a billion to a billion dollars," said Dr. Anthony Rippo, the chairman and chief executive officer of Bioreason. "That's been our goal from the time we began planning" Bioreason.

Rippo, along with John Elling, the company's executive vice president of technology, discovery and evaluation, and Susan Bassett, executive vice president of global technology operations, founded Bioreason in Santa Fe about two years ago.

As could be inferred from the name, Bioreason isn't in the gold- or silver-mining business -- the company instead is involved in data mining, developing automated reasoning systems with medicinal chemists, computational scientists and software engineers to analyze data produced by drug companies in their search for new drugs.

That search is expected to intensify next year, when pharmaceutical companies begin employing newly developed computer-driven "robots" that will produce even larger amounts of data needing to be analyzed, Rippo said.

"There's no possible way humans can analyze that much data," he said. "We're building software to look at what the robots will be producing."

In addition to analyzing the data, Bioreason's software also stores the information it discovers, allowing those files to be analyzed as many times as necessary for other drug leads.

Bioreason is one of about a dozen startups around the world making data-mining tools. One of those firms, Lion Bioscience in Heidelberg, Germany, recently signed a $100 million deal with Bayer, a giant drug company, to produce an automated system to mine genetic databases.

Bioreason, Lion Bioscience and others were recently mentioned in a list of "genome miners" in an article in Technology Review, the Massachusetts Institute of Technology's magazine of innovation, about mining the human genome.

(Actually, Bioreason is not involved in genome mining but in small-molecule mining, Bassett pointed out.)

Earlier this year, Parke-Davis Pharmaceutical Research Division, a subsidiary of Warner Lambert, entered into a development collaboration with Bioreason. In September, a Swedish firm, Biacore, invested $900,000 in Bioreason in an alliance intended to speed up drug discovery.

Together with money raised from private stock offerings purchased by individuals in Santa Fe and elsewhere, Bioreason has raised about $3 million, Elling and Rippo said.

The firm has resisted accepting investment from venture-capital firms.

"So far, we haven't had any investment from the venture-capital community, " Elling said. "That's something we wanted to avoid."

Venture-capital firms, Elling explained, typically expect to take over, or at least control, companies they invest in.

Elling said Bioreason anticipates signing a contract with another major pharmaceutical firm on Dec. 1, and another major contract is likely to follow before the end of the year.

Bioreason expects to make an initial public offering of its stock once its valuation reaches $100 million, he said. That should be within the next year or two.

Rippo, a doctor of medicine, started Bioreason along with Elling, who has a doctorate in analytical chemistry and was formerly on the technical staff at Los Alamos National Laboratory, and Bassett, who has her doctorate in biostatistics and was previously an associate professor of computer science at Florida State University.

Rippo had started several venture-backed companies, and he is a new-business development consultant at the Los Alamos Industrial Partnership Office.

Elling worked at LANL for six years in automated data processing and then signed on as a consultant for Amgen, a drug-development company with a division in Boulder, Colo. Bassett also was a consultant for Amgen.

Amgen wanted its consultants to form a company that would work with it, a suggestion that led Elling, Bassett and Rippo to establish Bioreason with the anticipation that Amgen would be their first partner.

"We realized that there was definitely a market for what we were doing, " Bassett said. "It was more than a part-time endeavor -- we needed to do it full time, and we needed to do it quickly. Some of the computational tools I had used could be brought to bear very effectively."

In their new venture, the three scientists quickly found they had a problem.

"Amgen in Boulder was to be our first customer," Elling recalled. "But then Amgen closed its Boulder division. Suddenly there was a lot more risk."

Fortunately for the future of Bioreason, Parke-Davis was also interested in Bioreason's software and provided some start-up funding for a research alliance.

Another key member of Bioreason's team is Ruth Nutt, a retired senior scientist from Merck, the giant pharmaceutical company. She played a key role in the discovery of a drug called Crixivan, used in the treatment of AIDS, and was retired and living in Santa Fe when she was asked to join Bioreason.

"It was a great stroke of luck to find (Nutt) here," Rippo said. "The best medicinal chemist in the world is living in Santa Fe, and we didn't even know she was here."

So important has Nutt been in the development of Bioreason's software that it is informally referred to as e-Nutt, Rippo added.

Nutt, who has a Ph.D in organic chemistry, said she decided to join Bioreason because "it's a challenge and an opportunity to put to use some of the thinking I did in the drug-development process and see if we can build computer models to do what I did in the laboratory for 35 years."

The software enables the researcher "to make a good guess at which compounds have the best chance of being developed into new drugs," she said. "We are trying to help in the decision-making process right from the start."

Nutt also has been "instrumental" in relaying to Bioreason's customers some of the results coming out of the analyses. "I talk their language," she said.

Bioreason originally opened its doors in a small office on Johnson Street, but soon found itself in need of more space. That resulted in the move to the Wells Fargo Building on Washington Avenue.

"We're now using part of the third floor of the Wells Fargo building, " Rippo said. "We plan to make a deal for the rest of the floor. We all like being downtown."

Bioreason employs almost 20 people, but that number could grow as demand for the firm's services increase. Rippo said the firm could employ 25 by the end of 1999 and up to 55 by the beginning of 2001.

Overall, Bioreason has been successful in recruiting employees and moving them to Santa Fe, but some of the prospects who received offers to join the company decided not to do so, mainly because they were unhappy with Santa Fe's public schools.

"We've been turned down by seven to eight chemists because of school problems," Rippo said. "These people live in Boston or Princeton, and they're used to good schools. It's been very, very frustrating for us."

To help, Bioreason has hired a school consultant to help employees cope with educational matters.

And although the company's clients are not located in New Mexico, Bioreason "is a wonderful company for Santa Fe," Rippo said. "We've raised $3 million so far, and almost all of it has gone into the local economy."

Rippo, a native of San Diego, thinks Santa Fe is in the position his hometown was 20 years ago, when that Southern California town also was dependent on government spending. San Diego eventually went on to become a hot bed of entrepreneurial activity, especially for various bio-tech start ups. In the process, many local people who invested in those ventures became millionaires.

"I think the same thing can happen in Santa Fe and in New Mexico," Rippo said.