OTTAWA, Ontario - For many early-stage biotech companies, future survival in a tough climate for raising venture capital depends on balancing available cash with a promising mix of therapeutic programs and technology that will be attractive for potential partners.

Vancouver-based Kinetek Pharmaceuticals Inc., a company specializing in therapeutics based on modulation of disease-related signal transduction pathways, has recently undertaken what it called a K2000 Initiative, the purpose of which was to reduce expenditures while concentrating resources on programs that have the near- and medium-term potential to generate commercial revenues.

According to Andre Archimbaud, president and CEO of Kinetek, the company's proprietary technology and expertise in signal transduction strongly positions it in diabetes and cancer. As a consequence of establishing program priorities that emphasize drug development and corporate partnering, Kinetek reduced staff by 20 percent - from 53 to 42 - and aims to cut projected expenditures through September 2000 by 28 percent, or about C$4.2 million.

The company has focused its R&D on the discovery and development of small-molecule drugs aimed at blocking the action of cell-signaling enzymes to treat diabetes, cancer and other chronic diseases. Many important human diseases display aberrations in the normal signaling behavior and potentially could be treated with drugs targeted at key cellular enzymes.

This approach has helped the company attract C$7.9 million (US$5.3 million) in a first stage of equity financing designed to support drug development programs, Archimbaud said. Along with private investors, participating in the financing round was a syndicate of six venture capital funds: Ventures West BC Technology Investment Fund; Working Opportunity Fund; Exceptional Technologies (VCC) Funds and Trian Equities Ltd., of Vancouver; the Bank of Montreal Capital Corp.; and Royal Bank Capital Corp., of Toronto.

Kinetek expects these and additional investors to participate in the second stage of this financing round, scheduled to close by Oct. 31. In addition to the significant financing, Kinetek has just received a U.S. patent on its lead anti-diabetic pharmaceutical, KP-102. This product is an organo-vanadium compound that acts downstream of the insulin receptor and serves as an insulin sensitizer.

In animal models of diabetes, KP-102 was found to be effective in lowering blood glucose levels. The decrease in blood glucose was observed without any increase in circulating insulin levels, indicating the compound sensitized the insulin-resistant tissues to the effects of endogenous insulin. KP-102 also had other positive effects such as reduced plasma cholesterol in diabetic rats. Furthermore, unlike some other classes of anti-diabetic drugs, KP-102 did not cause an increase in body weight in diabetic animals.

The compound is in Phase I trials in the UK.

The company plans to progress KP-102 into Phase II clinical trials after reaching a development agreement with a pharmaceutical partner.

Kinetek's cancer programs are aimed at cell-cycle inhibition and integrin signaling. From ongoing research, the company has identified a series of molecules that prevent cancer cells from avoiding apoptosis. One molecule, KP-211, is in lead optimization, and other highly selective structures are being evaluated in various cell-based assays and model systems prior to analog synthesis.

Kinetek's scientific collaborators also have discovered a novel and proprietary protein kinase, ILK, which has been implicated in cancer progression. Research has shown that overexpression of ILK disrupts the proper interactions between cells and the extracellular matrix as well as cell-to-cell interactions. In turn, this induces tumor formation and stimulates cell migration.