Looking to broaden its reach in the gastroenterology market, Salix Pharmaceuticals Ltd. is acquiring InKine Pharmaceutical Co. Inc. in an all-stock transaction valued at $190 million.

Pending shareholder approval, holders of each InKine share would receive Salix common stock valued at $3.55, though the final exchange ratio will be determined based on Salix's stock price prior to closing, expected to occur in the fourth quarter. InKine shareholders would own about 20 percent of the combined company, which would boast a total of six marketed gastroenterology products with the addition of InKine's bowel-cleansing tablet Visicol.

Shares of InKine (NASDAQ:INKP) jumped 43 percent, or 94 cents, Friday to close at $3.11. Salix's shares (NASDAQ:SLXP) fell 99 cents, or 5.4 percent, to close at $17.45.

"It's a perfect strategic fit," Adam Derbyshire, chief financial officer for Salix, said of the acquisition, adding that there is "no overlap from a product standpoint."

Salix focuses on inflammatory bowel disease and InKine's products are aimed at purgation and chronic constipation. Under the agreement, the combined company would operate from Salix's Raleigh, N.C., headquarters under Salix CEO Carolyn Logan. InKine would name one member of the company's board.

"The synergies for both InKine and Salix are fantastic," said Leonard Jacob, chairman and CEO of Blue Bell, Pa.-based InKine. "It's a case of one plus one equaling three."

Jacob said the companies had informally discussed the possibility of merging over the past few years, as both developed their own sales forces and research and development teams. Since Salix operates at a larger scale than InKine, "it really made sense to look carefully at the offer," he told BioWorld Today, and Salix's offer was a good one, he said.

Jacob founded InKine in 1997 and said the company began operations the following year with a market value of about $23 million.

"In any enterprise, you look to expand, build and diversify, so it's always nice to get to this point," he said. "Then the question becomes how can we move the franchise to the next level and bring additional value. I think the acquisition by Salix allows this to happen."

The move would put InKine's Visicol, the first oral bowel-cleansing product on the market, into the hands of Salix's larger sales force. Approved in 2000, Visicol recorded sales of $5.2 million for the first quarter of 2005, and InKine estimated that the product would bring in between $28 million and $32 million for the year. Visicol is taking about 15 percent of the purgative market.

But Derbyshire said he hopes Salix's sales force, which would increase from 68 to 100 people after the merger, will help sales of Visicol "to reach $100 million within five years."

Salix likely will consider staff additions from InKine's 45-member sales team.

This financial impact on Visicol and, hopefully, on INKP-102, a second bowel-cleansing agent awaiting FDA approval, was one of the driving forces behind the agreement, Jacob said. InKine will get to "leverage that incredible marketing and sales organization" with the anticipated launch of INKP-102.

A new drug application for INKP-102 was filed in April based on data from two trials showing the product to be comparable or superior to Visicol in overall colon cleansing response rate. If approved, INKP-102 likely would replace Visicol in the purgative indication, though Visicol is being investigated in chronic constipation. (See BioWorld Today, May 4, 2005.)

InKine reported a net income of $314,000, or 1 cent per share, for the first quarter. As of March 31, the company had $10.6 million in cash.

Salix, which in-licenses late stage or marketed drugs, launched its first product, Colazal, in 2001 for the treatment of mildly to moderately active ulcerative colitis. The company also sells Xifaxan tablets for travelers' diarrhea. For the first quarter, Salix reported net income of $3.4 million, or 9 cents per share. The company's cash, cash equivalents and investments as of March 31 totaled $34.6 million.

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