AstraZeneca buys 20% of CAT with promise of fresh growth

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The Independent Online

Astrazeneca, the second-largest pharmaceuticals giant in the UK, has bought a 20 per cent stake in Cambridge Antibody Technology and signed a wide-ranging drug development alliance that could transform the fortunes of one of the UK's oldest biotechnology companies.

Astrazeneca, the second-largest pharmaceuticals giant in the UK, has bought a 20 per cent stake in Cambridge Antibody Technology and signed a wide-ranging drug development alliance that could transform the fortunes of one of the UK's oldest biotechnology companies.

The deal, which has been secretly under negotiation for the past year, effectively turns CAT into a research arm for AstraZeneca. It reinvigorates the company after a period of strategic disappointments and, most importantly, gives CAT the prospect of making larger royalties on any drugs that are discovered. The announcement yesterday came on the same day as CAT went to court to claim back more of the meagre royalties it says it is owed on a drug launched by a US partner.

AstraZeneca said it will pay £75m for 19.9 per cent of CAT and will pay an equal share of the research costs on at least 25 new drugs over the next five years.

The deal - which will concentrate on developing drugs for inflammation and lung diseases - takes the pharmaceutical giant into one of the fastest growing areas of drug research: using antibodies cloned from the human immune system. Sir Tom McKillop, the chief executive, said: "I see this alliance as a major component of AstraZeneca's strategy to develop new therapeutics for inflammatory and respiratory diseases."

Peter Chambré, the chief executive of CAT, said human antibodies were a class of drugs that might have fewer side effects than those based on traditional chemistry or on animal antibodies. "Using the biological mechanisms that the body uses is an intuitively good thing to do," he said.

The pharmaceuticals industry is concerned that regulators across the globe will focus more heavily on the potential side effects of new drugs when deciding whether they are worth approving for use. This follows a series of public health controversies and, most recently, the withdrawal by Merck of the painkiller Vioxx. AstraZeneca's shares have tumbled after a blood-thinning drug was turned down by regulators and the safety of its cholesterol-lowering drug Crestor was questioned.

The investment in CAT shares is small change for AstraZeneca, however, which has spent more than £75m buying back its own stock in the past fortnight. The price it has paid for CAT shares was set at 734p, 27 per cent higher than CAT's share price last week. Yesterday, CAT's shares jumped 34.25p to 598p, off its morning highs as investors cautioned that the deal covers very early research work. It will take until at least 2012 before any drugs can be launched, and there are no guarantees that any will be successful in human trials.

CAT will concentrate the bulk of its research budget on the alliance from next year. It can also opt to continue sharing the costs of development work until the midway point of human trials or, in some cases, all the way to launch. The more money it puts in, the greater the royalties from any launched drugs.

Mr Chambré said the alliance transforms the company from one reliant on selling a licence to its technology in return for a sliver of royalties of perhaps 4 per cent, into one partnering the development of its own drugs.

The High Court yesterday began hearing CAT's claims that Abbott - who developed the blockbuster arthritis drug Humira using a licence from CAT - is paying less than half the royalties it should. CAT could gain £100m to £200m of income if its view prevails. Geoffrey Vos QC, for CAT, said Abbott must have been "out to lunch" if it thought that its view of the contract was something that CAT would have agreed to. The case is expected to last three weeks.

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