CAT fight over drug royalty pivotal for UK biotech
Fri Nov 19, 2004 11:12 AM ET
By Ben Hirschler
Unfortunately, I'm going to be busy for the next couple of weeks, or I'd make the trip to London....
LONDON, Nov 19 (Reuters) - British biotechnology company Cambridge Antibody Technology Plc (CAT.L: Quote, Profile, Research) goes to court on Monday in a royalty dispute over arthritis drug Humira that is pivotal to its future.
The hearing in the High Court in London is a "David and Goliath" confrontation between little biotech and big pharma, in the form of U.S.-based Abbott Laboratories Inc (ABT.N: Quote, Profile, Research) .
If CAT wins, its shares could jump more than 40 percent, according to Sam Williams, a biotechnology analyst with Lehman Brothers in London.
Defeat, meanwhile, would be a disaster.
"CAT would have to undergo significant restructuring, the company's profitability target is unlikely to be met and further funding would be required," said Samir Devani of Code Securities.
At issue is exactly how much Abbott should pay CAT under a contract covering Humira, which the two firms jointly discovered using technology developed by CAT.
The drug itself has been a huge success, with sales almost tripling in the third quarter to $227 million and analysts predicting peak annual revenues sales of more than $2 billion.
CAT, however, gets only a fraction of that.
It currently receives a gross royalty of 2 percent of sales, according to analyst estimates, but argues it is entitled to 5 percent.
Since the judge in the case is not in a position to rewrite the contract, but only interpret its provisions, his verdict is expected to boil down to a simple win or lose for CAT or Abbott.
The case is expected to last three weeks with judgment handed down early in 2005.
The two companies could agree to settle at any stage but the fact that they have not yet done so suggests each is convinced it has a strong case.
RELIANCE
The legal battle highlights, once again, the close but often difficult relationships between large pharmaceutical companies and biotechnology firms.
"Big pharma is going to be more and more reliant in future on smaller research companies to fuel their pipelines," said Martyn Postle, head of British-based consultancy Cambridge Healthcare & Biotech.
But the larger partner can drive a hard bargain.
In the case of CAT, Abbott inherited the Humira licensing agreement when it acquired Knoll, the former pharmaceuticals arm of BASF AG (BASF.DE: Quote, Profile, Research) , in 2001.
CAT will also report full-year financial results on Nov. 22 -- but the figures are expected to be overshadowed by the court case starting later the same day.
Morgan Stanley expects CAT to recognise revenues of 15.5 million pounds ($28.79 million) in the year to Sept. 30, driven mainly by Humira payments, and report an operating loss of 41.8 million. ($1=.5384 Pound).... |
