For now, I'm with ML on this (FWIW) - though I'm not looking for a huge rise...
This from FT.com yesterday (the only explanation for Abbott's behaviour seems to be that they have no reputation to risk...) :
By David Firn and Nikki Tait
Cambridge Antibody Technology's High Court victory over Abbott Laboratories in a bitter dispute over royalties for its Humira arthritis drug will do much more than boost the biotechnology company's revenues. Peter Chambré, CAT chief executive, hailed the victory as "an exceptionally good result" for investors, as the company's shares rose 25 per cent in early trading.
But some industry watchers believe CAT's victory is also an important step for small biotechnology companies who license their products to big pharmaceutical groups.
"Maybe now UK investors will see that it is possible for the fruits of UK bioscience to be appropriately commercially rewarded," says Martyn Postle of Cambridge Healthcare & Biotech, a consultancy.
If CAT's victory stands (Abbott has said it will appeal against the ruling) it will create a well-funded biotechnology company in a sector that has been looking anaemic since profitable groups Celltech, PowderJect and Amersham were bought by foreign companies.
Humira is forecast to achieve sales of more than $2.5bn a year. The effect of the High Court ruling will be to raise the royalty rate that CAT receives from Abbott from 2 per cent to 5 per cent. That means CAT no longer faces the prospect of having to return to the stock market for funds before the drug becomes profitable expected in 2008.
The extra cash should also strengthen CAT's position in the biotechnology industry's equivalent of speed dating.
Almost every week, somewhere in Europe and the US, biotechnology and pharmaceutical companies sit down at "biopartnering" conferences. The biotechnology companies showcase their experimental drugs, while the pharmaceutical companies attempt to demonstrate that they are "the marketing partner of choice". Yet while increasing numbers of pharmaceutical companies profess that ambition, few biotechnology executives believe it.
Big pharmaceutical companies are more reliantthan ever on biotechnology companies as a source of new products. But when it comes to making deals, lossmaking biotechnology companies are negotiating from a position of weakness.
Mr Postle says there is a lot of room for improvement in the way big pharma companies are perceived by their smaller licensing partners in the biotechnology industry. "The complacency of some big pharma companies is that they think just because they are big, biotech will come cap in hand to them," he says.
Keith Redpath, head of banking at Wood Mackenzie, says CAT's victory over Abbott is "a victory for the little guy", at a time when big pharmaceutical companies face a productivitycrisis in research and development.
The plight of bigpharma was highlighted last week when bad news on top- selling products knocked 14 per cent of Pfizer's share price and 8 per cent off AstraZeneca's.
One response to such problems has been to license-in drugs from biotechnology companies. The top-10 pharmaceutical companies generated 35 per cent of their revenues from in-licensed products in 2003, according to data from Wood Mackenzie.
Merck, which was recently forced to withdraw Vioxx, one of its top-selling products, is expected to see revenues from in-licensed products rise from 25 per cent to 45 per cent by 2008. Even Abbott, which came out worst in a recent survey of biotechnology companies' views of their partners, strikes 50 biotechnology deals every year.
With an increasing amount of sales generated by other companies' products, it is important to minimise the royalties paid. Merrill Lynch estimates that Abbott pays 13 per cent of Humira sales to four companies for the right to use their technology in development or manufacturing.
The dispute with CAT centred on how much of the royalty stack Abbott could offset against CAT's royalties. The judge said it had deliberately misinterpreted its contract to underpay CAT.
Mr Redpath says that if companies such as Abbott are seen to be acting unfairly, they risk damaging their reputations as good partners. "Given the competition for good development products, it does seem strange that Abbott would risk its reputation as a partner of choice over a sum of money, which while of enormous significance to CAT, is an insignificant amount to Abbott," he says.
Mr Postle says pharmaceutical companies must make more effort to woo prospective partners. "Pharmaceutical companies have been very good at marketing themselves to physicians, the public and investors, but not to the drug discovery companies. What is the point of having a great relationship with prescribers if you have no products to sell?" he says.
Nevertheless, most people who have seen Abbott's contract with CAT also agree that bad drafting gave Abbott the opportunity to attempt to reduce its royalty payments
"I think people will now look at what their stacking agreements are," says Stephen Bennett of Lovell's, the law firm, although he points out that companies are stuck with deals already inked and that the real impact of the High Court decision will be on new agreements.
Nigel Jones, head of intellectual property at Linklaters, the law firm, says the CAT/Abbott case might also encourage companies to look at alternative ways to resolve disputes over royalties. The legal challenge took 12 days of court time, and occupied four QCs, along with numerous other barristers and bulky teams of solicitors. The legal bills will be considerable... |
