By Brady Huggett

QLT Inc. has been looking to break out of the photodynamic therapy field, and did so by entering a potential C$120 million (US$80 million) signal transduction inhibitor agreement with neighbor Kinetek Pharmaceuticals Inc.

The Vancouver, British Columbia companies formed a research, development and license agreement to treat eye, immune system and kidney diseases using the inhibitors. Although being in close proximity with a collaborator isn¿t always important, it is convenient, said Julia Levy, QLT¿s CEO and president,

¿We¿ve looked at [Kinetek] very carefully and have done due diligence on its products,¿ Levy told BioWorld Today. ¿We¿ve liked what we¿ve seen. It¿s local, and its easy to work with them, and I know locale should not drive deals, and it doesn¿t, but geographically, if you are in the same area, it does make working together easier.¿

QLT will make an initial C$11 million equity investment in Kinetek, getting about 3.1 million shares of the privately held company. That¿s less than 10 percent of Kinetek, said James Hudson, Kinetek¿s senior vice president and chief financial officer.

Kinetek was founded in 1992, Hudson said, and is still an early stage company. Although its work with the signal transduction inhibitors was certainly enough to attract QLT, it has not yet moved a product into human trials. But that interest from QLT should make an impact on investors.

¿QLT is an industry leader that is highly regarded,¿ Hudson said. ¿This agreement tells the investment community that someone that knows what they are doing and is interested in the science is interested in us.¿ Hudson said Kinetek will be looking to draw those investors once ¿things look more rosy¿ for initial public offerings.

Signal transduction focuses on defects in cellular functions in diseases. The first step in the process is identification and target validation of the proteins involved in the communication between cells that also correlate with the onset of disease. Step two is generating drug candidates to selectively inhibit these targets. Kinetek identifies the targets and corresponding inhibitors. The company has raised about C$56.5 million thus far, including the C$11 million from QLT, with the potential for much more.

The deal stipulates the C$11 million will support the discovery and validation of two drug candidates. QLT has an option to obtain up to three other compounds through additional equity investments of C$5 million per compound.

Once a compound has reached the clinic, QLT has the right to exclusively license that compound for ocular, immune and renal diseases ¿ excluding asthma ¿ in exchange for milestone payments and royalties to Kinetek. If that occurs, QLT will manage clinical development and commercialization of the compound and Kinetek will retain rights for a co-development option for products outside ophthalmology. Milestone payments are based upon clinical trial progress, product approval and sales volumes. Combine all this, and the deal could top out at about C$120 million.

¿We think there is a real opportunity to get two preclinical targets in the next two years,¿ Levy said. ¿And it does not impact our bottom line because it¿s an equity position we have taken and have not paid anything up front from our cash position. It doesn¿t show up on our expenses.¿

That bottom line showed QLT posting a net income of about C$12.6 million in the first, with about C$254.4 million in cash, cash equivalents and short-term investment securities at the end of the period ¿ a quarter that saw the company pull in US$48 million in Visudyne sales. Visudyne, its product for predominantly classic subfoveal choroidal neovascularization due to age-related macular degeneration, is available in 35 countries. However, QLT received an approvable letter from the FDA in early February for Visudyne therapy for treatment of predominantly classic subfoveal choroidal neovascularization caused by pathologic myopia and ocular histoplasmosis syndrome. That supplemental approval is all but done, Levy said. (See BioWorld Today, Feb. 6, 2001.)

¿We have the approvable letter and have had no comments from the FDA,¿ she said. ¿It¿s as close as you can get to certainty with that.¿

Dennis Harp, an analyst with Deutsche Banc Alex. Brown Inc., of New York, called the collaboration ¿an attractive deal¿ and said it could provide lower-end pipeline compounds for QLT.

¿This is a way of augmenting QLT¿s pipeline,¿ he said. ¿This deal is focused on earlier-stage programs, but they all fit the company¿s strategy, which focuses on the ophthalmology specialty.¿ Harp put QLT¿s one-year stock target at $42.

QLT¿s stock (NASDAQ:QLTI) dipped 19 cents Friday to close at $20.36.

Levy said the move into signal transduction inhibitors should not come as a surprise.

¿I think we have stated our goal for quite a while that we do want to expand beyond photodynamic therapy,¿ she said. ¿We¿ve been looking for a platform where our internal people can work on it and this is a very good platform for us to get involved with.¿

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