AstraZeneca closes in on £600m deal for CAT

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The Independent Online

Cambridge Antibody Technology (CAT) is set to become the latest biotech group to lose its independence, selling out to AstraZeneca in a deal worth about £600m.

The two companies first forged an alliance in 2004 when AstraZeneca paid £75m for a 19.9 per cent stake in the Cambridge-based drug developer. Since then CAT has effectively been a research arm for AstraZeneca, sharing the cost of developing 25 new drugs with the country's second largest pharmaceuticals company.

Both groups spent the weekend thrashing out the final terms of a deal and an announcement could come as early as today. Yesterday both sides admitted they were "in talks".

For Dave Brennan, AstraZeneca's chief executive of five months, buying CAT will go a long way towards strengthening his company's drugs pipeline. He has been on an acquisition spree since his promotion, homing in on the biotech sector with deals for the likes of Kudos Pharmaceuticals, a privately owned cancer therapy firm.

A deal with CAT would take AstraZeneca further into one of the fastest growing areas of drug research: using antibodies cloned from the human immune system. Scares over the potential side effects of new drugs and a series of public health controversies, such as that over Merck's painkiller Vioxx, have boosted the sector's appeal.

It is thought that a takeover would value CAT at more than £600m, almost one-third more than its market valuation on Friday. CAT, which is one of the UK's oldest biotech companies, has been listed on the stock market since 1997. It has remained in the red all that time and recently abandoned hopes of making a profit by 2008.

If a deal is agreed, all eyes will be on Abbott Laboratories, the US group, to see if it wants to mount a counter bid. CAT has a long - and fraught - relationship with Abbott, which has the licence to sell its blockbuster drug to treat rheumatoid arthritis, Humira. CAT fought a legal battle with Abbott over the royalties it gets for Humira, which at 2.688 per cent of sales are not large.

Sam Fazeli, senior biotech analyst at Piper Jaffray, said: "Would Abbott want to pay a royalty to AstraZeneca?" He backed the UK group to win if a bid battle does break out. "This deal is fantastic for the UK biotech sector. It returns a lot of cash to the market, which will hopefully get recycled into the sector," he added.

AstraZeneca has historically eschewed buying in drugs in favour of developing its own. But a series of setbacks with medicines developed in-house in 2004 forced it to think again. It will have to be patient to see the fruit from buying CAT, however, as most of the biotech's drugs are at a nascent stage.

There is something of a tradition for British biotech groups to sell up. Celltech was swallowed by Belgium's UCB two years ago, while in 2002 PowderJect sold out to Chiron, now part of the Swiss group Novartis. Biotech executives will take comfort from the fact that AstraZeneca is at least British.