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

Executive Summary

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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The Battle For OGS

Celltech's hostile bid for OGS may have scuppered the company's cosy merger plans with CAT. But OGS isn't giving in without a fight. And Celltech's offer may even prove beneficial to OGS shareholders, bumping up the firm's price-tag for CAT--or another suitor.

CAT Merges for Money; Chooses Well-Dowered OGS

The merger of Cambridge Antibody Technology and Oxford GlycoSciences won't, in the short term, solve many of the problems that both share--namely, a lack of products, scant clinical development capabilities and a non-existent sales and marketing infrastructure. It does, however, create a financially stronger potential acquiror in a European biotech industry in need of consolidation.

How Much for That Money in the Window?

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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