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Biotechs Beware: Royalty Offset Clauses Can Seriously Damage Your Health

Executive Summary

Cambridge Antibody's royalty dispute with partner Abbott over potential blockbuster Humira sends a sobering message to biotechs: beware poorly-constructed royalty offset clauses. The argument won't help Abbott's partnering image, either.

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The US: To Go, or Not to Go?

Whether or not European biotechs should establish operations in the US may seem like a no brainer: it's the biggest drugs market, with more potential partners, better funding, more promising exits for investors and a more experienced management pool than Europe. But getting there-and getting noticed-isn't easy. And since most executives agree that going to the US half-heartedly isn't worthwhile, Europe's biotechs need to think hard about when and whether they're ready to go. For a minority, setting up in the US may not be the right solution-for now.

KuDOS/Novacea: Pooling Biotech Resources

KuDOS Pharmaceuticals' first out-licensing deal appears disappointing: the UK biotech has neither signed an established cancer player nor secured a significant upfront fee for its potentially first-in-class cancer compound, in a hot area of research. But the point of the deal is not to bolster KuDOS' cash coffers, rather, to combine the resources of two biotechs to investigate the drug's potential in a broader range of indications than either company could do alone.

Cambridge Antibody: Time to Transform

Critics charge that Cambridge Antibody's lack of involvement to date in the clinical fate of its antibodies has caused it to stagnate and opened up a significant gap in the firm's pipeline. The recent renegotiation of its anti-TGF-beta deal with Genzyme, however, demonstrates CAT's willingness to take increased risks, and that it recognizes the need to take a greater stake in the development of its own product candidates. Once CAT begins to buy in the products necessary to invigorate its pipeline it will be easier to look past the firm's lackluster dealmaking and a royalty dispute with Abbott over Humira. After all, CAT has an industry-leading technology platform and an ample cash-pile, and there have been recent signs of life in the antibody licensing market.

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