By Debbie Strickland

NEW YORK — Signal Pharmaceuticals Inc. has taken another big step toward a possible 1998 initial public offering (IPO) by snagging a $59 million deal from Ares-Serono Group to identify small-molecule inhibitors of the NF-KkB gene regulation pathway.

Signal officials are unveiling the agreement today in New York at the 14th annual BancAmerica Robertson Stephens Medical Conference, where biotechnology and other healthcare firms have gathered en masse to court investor interest. About 230 companies are presenting at the four-day conference, with some 2,500 people expected to attend.

The Ares-Serono support, combined with a $12 million mezzanine financing completed in September, gives San Diego-based Signal more than three years' worth of cash, positioning the company to seek its fortunes in the public market when the time is just right — which could be soon.

"Nineteen-ninety-eight could well be the year that Signal makes a stab at an IPO," said Alan Lewis, president and CEO. "We'll keep an eye on the pulse [of the market] in early 1998; if it's appropriate . . . we'll make that serious decision."

Under terms of the Ares-Serono agreement, Signal will receive an $8 million equity investment, plus research funding totaling $9 million over three years. An additional $42 million in milestones is possible, along with royalties on products that reach the market.

Research Could Apply To Broad Spectrum Of Diseases

Geneva, Switzerland-based Ares-Serono gains worldwide marketing rights to all drugs that evolve from the project, with the exception of certain Asian countries already covered under a 1996 agreement between Signal and Tanabe Seiyaku Co. Ltd., of Osaka, Japan.

Signal retains a U.S. option to copromote products arising from the Ares-Serono collaboration.

The biotech firm's responsibilities include target identification and validation, high-throughput screening and lead optimization. Ares-Serono will handle the later stages of development.

"What's attractive about this collaboration is they would have primary responsibility for preclinical as well as clinical development, so it doesn't force us to integrate forward rapidly," said Alan Lewis, Signal's president and CEO.

The NF-kB research could have applications across a broad spectrum of autoimmune and inflammatory diseases, including rheumatoid arthritis, multiple sclerosis, asthma and psoriasis. Emerging scientific evidence also suggests the pathway may also be involved in the pathogenesis of neurodegenerative and cardiovascular diseases, and cancer.

NF-kB is a gene regulation pathway — a transmitter of biological information from a cell's surface to its nucleus, where specific genes are activated or inhibited. NF-kB regulates a broad set of inflammatory genes including those that express tumor necrosis factor, interleukin-1 and cell adhesion molecules.

Working with Michael Karin, a professor at the University of California-San Diego and a founding scientist of the company, Signal scientists published their discovery of two key molecular targets in the NF-kB pathway. The two proteins, IkB kinase 1 and 2 (IKK-1 and IKK-2), regulate the activation of NF-kB and, correspondingly, a wide array of pro-inflammatory genes and gene products, including cytokines, chemokines and cell adhesion molecules.

The research was published in the Aug. 7 issue of Nature, the Oct. 17 Cell, and the Oct. 31 Science.

The two IKK proteins, along with NF-kB-inducing kinase (NIK) and a fourth protein, as yet undisclosed, will serve as targets in the new collaboration. Ares-Serono already had rights to NIK through a previous agreement under which it supported research at the Weizmann Institute of Sciences, in Israel.

Founded in 1993, Signal also has genomics-oriented drug discovery programs under way in the fields of bone metabolism, neurological and cardiovascular disease, viral infections and cancer.

The company's researchers combine human cell lines, molecular biology and functional genomics to identify key gene regulating pathways and corresponding drug targets. Signal and its collaborators — which also include Akzo Nobel Pharma Group, of Arnhem, the Netherlands, and Roche Bioscience, of Palo Alto, Calif. — have identified 12 gene-regulating targets to date.

Signal's drug discovery platform integrates biochemical and whole cell screening assays with robotics-based, high-throughput screening, and combinatorial and computational chemistry. Two compounds with potential for treating autoimmune and inflammatory disease and osteoporosis have reached the lead optimization stage. *

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