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How Much for That Money in the Window?

Executive Summary

Cambridge Antibody Technology PLC's January £55 million share-for-share offer for Drug Royalty demonstrates not only CAT's growth in the last decade but also a willingness by biotech companies to indulge in a little creative financing. The move will help CAT reduce its cash burn and ratchet up its R&D spending at a time when the pace of more traditional methods of raising cash remains sluggish. And not least important, the deal illustrates how a transparent financing transaction to improve biotech P&L can be a straightforward alternative to today's obfuscating accounting practices which, in the current climate, look disturbingly Enronian.

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Royalty Flush: Why Monetizing Tomorrow's Revenue Stream Today Could Catch on in a Big Way

Biotechs remain voracious consumers of capital, but tapping the equity markets is often prohibitively dilutive. Royalty financing can provide lower-cost-of-capital funding while putting a price on assets the market often ignores. This cash can also allow biotechs to hold onto R&D projects longer, eventually pushing up the price of licensing deals. But although royalty financiers are eager, they are limited in the amount of risk they are willing to take; new players in the business though may nevertheless increase competition and drive prices up.

CAT Fight with Abbott: The Calculus of Royalty Offsets and Partnering Reputation

The fight between Abbott Laboratories and Cambridge Antibody Technology over two partly overlapping royalty-giveback clauses in their contract on Humira has implications far beyond the money--which itself is not inconsiderable. Abbott could theoretically save itself some $60 million in royalty fees, but it could also win itself a name for playing hardball with its partners, even in the event of a major drug development success.

CAT Fight with Abbott: The Calculus of Royalty Offsets and Partnering Reputation

The fight between Abbott Laboratories and Cambridge Antibody Technology over two partly overlapping royalty-giveback clauses in their contract on Humira has implications far beyond the money--which itself is not inconsiderable. Abbott could theoretically save itself some $60 million in royalty fees, but it could also win itself a name for playing hardball with its partners, even in the event of a major drug development success.

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