By Randall Osborne

SAN FRANCISCO — Chalking up its fifth collaboration and aiming for an initial public offering (IPO) this year, Signal Pharmaceuticals Inc. signed a three-year deal worth up to $25 million with DuPont Merck Pharmaceutical Co. to develop drugs that inhibit the gene-regulating targets of the hepatitis C virus and HIV.

"The company's humming," said Alan Lewis, president and CEO of San Diego-based Signal. He said the company is not intimidated by the recently volatile stock market, and anticipates an IPO later this year.

Signal was expected to release news of the deal with DuPont, of Wilmington, Del., today, before presenting at the 16th Annual Hambrecht & Quist Healthcare Conference here on Wednesday.

At the conference, Lewis said, company officials "intend to discuss with bankers who helped us with the mezzanine financing whether we ought to make a serious run at an IPO in 1998." Signal raised $12 million in that financing, which was oversubscribed. (See BioWorld Today, Sept. 17, 1997, p. 1.)

Under the terms of the DuPont agreement, Signal will get research funding for the first three years. DuPont will make up-front and milestone payments to Signal, will pay royalties on any sales, and will make an equity investment at the time of Signal's IPO.

The potential $25 million value of the deal includes the equity investment, Lewis said. More specific terms were not disclosed.

Signal's drug discovery platform integrates biochemical and whole cell screening assays with robotics-based, high-throughput screening and combinatorial and computational chemistry. In the DuPont deal, Signal will be responsible for screening assays and for lead identification; DuPont will handle lead optimization, clinical development and worldwide marketing.

Signal has been researching hepatitis C, and DuPont has a non-nucleoside reverse transcriptase inhibitor, Sustiva, in Phase III trials. Studying the virus's life cycles and mutations that occur within them is especially important, said Miguel Barbosa, senior director of experimental therapeutics at Signal.

Sustiva is taken once daily, in addition to other drugs. "The plan for hepatitis C would be to follow the same [program] — that is, to develop drugs to complement the current drugs," Barbosa said.

Lewis said Signal will enhance DuPont's virology program, but neither hepatitis C nor HIV will have more emphasis. "There's a balance between the two," he said. "DuPont is equally interested in both diseases."

Signal has "built critical mass within the company," Lewis said, and expects to nail down another partnership within the year. "We have high optimism that we'll get another collaboration in the next six months," he said, but could not predict whether it will happen before the IPO. *