Bristol-Myers Squibb said early Thursday that it has reached an agreement to buy oncology drug developer Kosan Biosciences for $5.50 a share in cash. As per a release given out by the New York-based pharmaceutical giant, it will pay about $190 million for Kosan after deducting Kosan's projected net cash balance as of 30 June.

The offer price represents a significant premium over Kosan's Wednesday closing price of $1.65 and consequently, the price multiplied three-fold in early Thursday trading to $5.44. Bristol-Myers investors also responded positively and its stock rose about one per cent to $22.22, before extending its gains by more than two per cent on Friday.

Bristol-Myers said the deal would enhance its growing portfolio of cancer drugs. Kosan has been working on two classes of cancer-fighting drugs known as heat shock protein 90, or Hsp90, and epothilones.

One of Kosan's Hsp90 compounds is currently in Phase III clinical testing for the treatment of multiple myeloma, a type of blood cancer. Phase III is the final round of testing before a product hits the market.

Under the terms of the deal, Bristol-Myers will begin a cash tender offer on or about May 29 for all outstanding Kosan shares. Bristol-Myers said it plans to finance the transaction from its existing cash resources.

The deal has been unanimously approved by the boards of both companies and is seen closing in 30 days, pending regulatory approval.

In an unrelated development, Bristol-Myers also said that it has licensed Kosan's epothilone compounds for which it will pay Kosan $25 million upfront. Kosan will also be entitled to receive milestone and royalty payments on any future products generated from the deal. Moreover, the deal would stand even if the proposed acquisition doesn't go through.

Bristol-Myers Squibb colloquially referred to as BMS, is a pharmaceutical corporation, formed by a 1989 merger between pharmaceutical companies Bristol-Myers Company, founded in 1887 by William McLaren Bristol and John Ripley Myers in Clinton, New York (both were graduates of Hamilton College), and Squibb Corporation.

The company is No.179 on the Fortune 500 list by market capitalization and reported sales of $19.3 billion in 2007, up from $17.3 billion in the previous year. It has more than 42,000 employees on its rolls.

Kosan was founded in 1995 and is headquartered in Hayward, California. The company currently has approximately 80 employees. It is an established cancer therapeutics company focused on advancing two new classes of anticancer agents through clinical development: Hsp90 inhibitors and epothilones.