ImClone Systems Inc. said Friday that it has formed CadusPharmaceutical Corp. to develop novel drugs based onintracellular signal transduction mechanisms to treat cancer,inflammation and allergies.

The announcement is the third this month of a new companydeveloping small molecules aimed at controlling mechanismswithin cells. The company's name is derived from "caduceus,"the winged staff of Hermes, messenger of the gods.

Ariad Pharmaceuticals Inc. last week said it raised $46 millionin the biggest private placement in the history of the industry.Ariad is targeting immune, inflammatory and allergic cascadeinhibitors, as well as certain cancers and genetic disorders.Earlier in the month, a group of venture capital investors andChiron Corp. announced the formation of Onyx Pharmaceuticalsto develop cancer therapeutics.

Other companies focusing on the intracellular area are SphinxPharmaceuticals Corp. (NASDAQ:SPHX), Sugen Inc. and TularikInc.

Cadus is developing compounds that inhibit proteinprenylation, which is a major event in signal transduction, saidSamuel Waksal, president and chief executive of New York-based ImClone (NASDAQ:IMCL). Waksal is chairman and actingCEO of Cadus, also of New York.

Receptors on the surface of cells have prenyl cystine tails thatallow them to interact with cell membrane targets calledsecond messengers. Cadus is developing compounds that blockthe interaction between the prenyl cystine tail and secondmessengers by preventing the cystine tail from sending out asignal.

Cadus has licensed from Princeton University a yeast-basedscreening system to screen for prenylation inhibitors.

The company has about 20 potential lead compounds and willbegin preclinical development shortly, said Waksal.

Cadus is also screening for other families of drugs that wouldact as agonists or antagonists of signal transduction at thereceptor level. Cadus might look for a joint venture in this area,Waksal said.

ImClone currently owns 42 percent of Cadus and its foundingscientists and management own the rest, said Waksal. ImCloneis investing more than $500,000 as the lead investor in a firstround of financing that aims to raise about $3 million fromfinancial institutions and individual investors.

Waksal said he expects the next round to be either a mezzaninefinancing or an initial public offering.

In addition to Waksal, other key Cadus personnel includeArnold Levine, chairman of the department of molecularbiology at Princeton, who is heading Cadus' scientific advisoryboard; and Dr. Dana Fowlkes, associate professor of pathology atthe University of North Carolina, Chapel Hill, who is director ofresearch.

The other founding scientists, all from Princeton's departmentof molecular biology, are James Broach, Thomas Shenk and JeffStock.

ImClone shares rose 50 cents to $16 on Friday. -- KarenBernstein

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