Biotech Values

[DewDiligence]

CATG
A long battle comes to an end…

[CATG settled for a slightly lower net royalty on Humira sales than they might have been able to obtain in court, but this is a good settlement for them nonetheless. Humira has the potential to be a mega-blockbuster, IMHO.]

http://yahoo.reuters.com/financeQuoteCompanyNewsArticle.jhtml?duid=mtfh96110_2005-10-26_08-29-10_l26...

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CAT settles with Abbott on key drug, shares jump

Wed Oct 26, 2005 04:29 AM ET
By Ben Hirschler

LONDON, Oct 26 (Reuters) - Cambridge Antibody Technology Group Plc ( CATG ) said on Wednesday it had settled a royalty row with Abbott Laboratories Inc ( ABT ) over the blockbuster arthritis drug Humira, boosting CAT's shares 5 percent.

The settlement came ahead of a hearing in the English court of appeal, which had been due to start this week.

Industry analysts said the settlement was positive for the loss-making biotech company, since it guaranteed crucial revenues from sales of Humira, which Abbott expects to rake in $1.3 billion this year.

Most commentators had expected CAT to prevail at appeal but there was always a chance it would lose, in a move that would slash vital income for the firm.

The new deal guarantees CAT a net 2.688 percent royalty on Humira as opposed to the previous 3.1 percent, after payments to the Medical Research Council and other licensors. [The key word here is “net” because it was the pass-through royalties to third parties that was the bone of contention.]

Abbott had been challenging the existing royalty rate. If CAT had lost, its net royalty rate might have ended up as low as 1 percent.

CAT and Abbott scientists jointly discovered Humira using the British firm's technology.

CAT won the first round of its dispute with Abbott in January but Abbott decided to take the matter to appeal. Richard Parkes, an industry analyst at ING, said the new royalties deal was 7 percent less than the best-case scenario for CAT but the settlement was still good news.

"Given the potential, albeit low risk, in our view, of a negative outcome from the upcoming appeal, in addition to the risk of the case continuing to drag on with further appeals to the House of Lords, we believe the outcome is a victory for CAT," he wrote in a note.

ONE-OFF PAYMENTS

CAT's Chairman Paul Nicholson said the resolution with Abbott meant his company could now concentrate fully on its future business.

The settlement also includes a number of one-off payments, with Abbott paying CAT $255 million, which CAT will pay to its licensors, in lieu of their entitlement to Humira royalties since January 2005. Abbott will also make CAT five annual payments of $9.375 million, commencing next January 2006, of which $2 million from each will go to CAT's licensors.

Humira, an injectable drug, was launched in 2003 and competes with Johnson & Johnson's ( JNJ ) Remicade and Amgen Inc's ( AMGN ) Enbrel.

It mimics antibodies normally found in the body and works by blocking tumour necrosis factor-alpha, a human protein involved in development of the disease.

The drug was approved in the United States earlier this month as a treatment for psoriatic arthritis, in addition to rheumatoid arthritis, and Abbott is also looking to widen its use into other disease areas.

Shares in CAT were 5.2 percent higher at 710 pence by 0810 GMT, after touching a high of 735p.
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