QLT Inc., a global biopharmaceutical company, announced that it will be acquiring Kinetek Pharmaceuticals, Inc., a Vancouver-based privately-held biopharmaceutical company. The acquisition required the approval by special resolution of Kinetek shareholders, as well as that of the B.C. Supreme Court, both of which were obtained.
"As a result of our previous involvement with Kinetek, we are well acquainted with Kinetek’s scientific programs," said Paul Hastings, QLT’s president and chief executive officer. "Given QLT’s research and development capabilities and resources, we feel the Kinetek science has strong potential in our hands, particularly in the area of oncology, an area of research that we did not have rights to in our collaboration."
Since June of 2001, QLT and Kinetek have collaborated on a research and early development program to develop signal transduction inhibitors for the treatment of eye, immune system and kidney diseases. Kinetek has a unique proprietary position on Integrin-linked kinase or ILK. Inhibition of the kinase activity of ILK has the potential of a broad range of clinical applications including cancer, inflammation, kidney, and eye diseases. In cancer, peer-reviewed published studies of small molecule ILK inhibitors discovered by Kinetek have recently shown that they block tumor angiogenesis and cause tumor shrinkage in animal models.
"We are pleased to be able to gain access not only to the target, but the proprietary ILK inhibitor small molecules in development," said Dr. Mohammad Azab, QLT’s chief medical officer and executive vice-president of research and development. "Inhibition of angiogenesis by targeting ILK through a small molecule may represent a potential advantage over current anti-angiogenic drugs in development."
The acquisition transaction is expected to close on Wednesday, March 31, 2004. Under the terms of the acquisition, QLT will make an aggregate cash payment to Kinetek shareholders of approximately $2.7 million. The net result of the acquisition transactions, which will include the recognition of a tax asset, will be favorable to EPS by between 14 and 16 cents. Further, QLT expects that the ongoing investments in developing the acquired targets could cost up to 5 cents per share in 2004. As a result, the effect of this transaction is an increase of 10 cents on the EPS guidance range of $0.74 to $0.86, provided in QLT’s earnings press release on February 11, 2004, bringing the EPS range to $0.84 to $0.96.
In June of 2001, QLT acquired just over 3 million shares of Kinetek and rights and options to receive compounds to be developed in the area of ocular and renal disease. Kinetek retained the rights to develop ILK for oncology.
The shares acquired were valued based on a concurrent private placement transaction and from 2001 until the end of 2002 the investment was held at cost. However, due to the general decline in equity markets, the lack of Kinetek resources applied to our collaboration, the decline in biotech industry valuations, and the reduced level of working capital available to Kinetek, QLT contracted an impairment assessment by an independent firm of chartered accountants. Based on this assessment, QLT wrote off its investment in Kinetek shares and consequently recorded a charge against earnings of $6.2 million in the fourth quarter of 2002. QLT’s primary interest in this asset today is to gain the rights to develop ILK and ILK targeted molecules in the area of oncology.
In recommending that Kinetek shareholders approve the acquisition agreement, the current board of directors of Kinetek advised shareholders that the company did not have sufficient resources to otherwise continue its operations.