CAT in £55m bid for Canadian drug group
By David Firn in London
Published: January 17 2002 11:45 | Last Updated: January 17 2002 16:08
Cambridge Antibody Technology, the UK biotechnology company, has offered C$126m (£55m) in an all-paper bid for Drug Royalty Corporation of Canada.
The acquisition, which has the backing of DRC's management and largest shareholders, would double the loss-making company's revenues.
CAT, which is still several years away from seeing its products on the market, will use royalties from DRC's portfolio of drug patents to fund development of its medicines. DRC had pre-tax profits of C$9.1m on revenues of C$21.1m in 2001. It also has cash reserves of C$26m. The acquisition frees CAT from a 1994 agreement to pay about 3 per cent of its revenues to DRC until 2009, further boosting cash flow.
John Aston, finan ce director, said DRG could be easily integrated with CAT's own royalty gathering activities.
"The kind of revenues we are getting here are the same we will be getting on D2E7 [an arthritis medicine licensed to Abbott]. The only difference is we did not originate the drugs," he said.
Analysts said the acquisition was a surprise. People would have expected CAT to follow other biotech companies such as Celltech that acquired a profitable pharmaceuticals company.
Emma Palmer, analyst at West LB Panmure, said the deal made as much sense as buying a drugs company.
"They are using shares to buy cash and cash generation," she said.
DRC's royalty portfolio includes blockbuster products such as Johnson & Johnson's arthritis antibody Remicade and Clarinex, a new allergy treatment from Schering-Plough. DRC also receives royalties from Acambis, the UK biotech company that recently won the contract to supply smallpox vaccine to the US government. CAT will not build up the patent portfolio and will not retain DRC's management.
CAT is offering shares worth C$3-a-share for DRC, a 7.9 per cent premium on Wednesday's closing price. At that level CAT would issue 3.2m shares, expanding its equity by just under 10 per cent. The Canadian group's management together with MDS Capital and Canadian Medical Discoveries Fund DRC's two largest shareholders have accepted the offer.
CAT is being advised by Merrill Lynch. DRC is being advised by HSBC Securities.
CAT shares were down 10p at £16.90 on Thursday afternoon. DRC was up 12 cents at C$2.90 in afternoon trading in Toronto.
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