BioWorld International Correspondent

LONDON - AstraZeneca plc is buying Cambridge Antibody Technology (CAT) Group plc, the UK's largest biotech, in an agreed cash deal that will cost AstraZeneca £567 million, and values CAT at £702 million (US$1.3 billion).

Previously, AstraZeneca paid £75 million for a 19.2 percent stake in CAT when they agreed to a research and development collaboration in November 2004.

At £13.20 per share, the price is a 67 percent premium on CAT's closing price of £7.96 per share, or £420 million in total, on Friday. CAT had net cash of £152 million at the end of 2005 and made an operating loss of £9.3 million in the year to September 2005.

CAT's shares on Monday (NASDAQ:CATG) zoomed up $9.26, or 62.4 percent, to close at $24.10. In London, the stock (LSE:CAT) moved up £5.08, or 64 percent, to close at £12.99.

David Brennan, who became CEO of AstraZeneca in January, said CAT was the foundation of his plan to build a major international presence in biologics. From 2010 onward, one-quarter of all products in the company's pipeline will be biological therapeutics.

"In 2004, [AstraZeneca] took an equity interest [in CAT], which now represents 19.2 percent of the issued share capital. This partnership has been very successful, and the offer is part of a strategic decision to introduce a biological R&D arm," Brennan said at an analysts' meeting.

Peter Chambre, CEO of CAT, will leave the company once the takeover is completed, but said the offer would further CAT's vision of building one of the world's premier biopharmaceutical companies. "CAT is known for its outstanding technology, [but] a company our size does not have the resources to capitalize on all the potential," he said.

The November 2004 collaboration has been "outstanding," meeting or exceeding all the targets that were set, Chambre added. The first candidate from the collaboration will go into the AstraZeneca pipeline by the end of 2006.

"The offer is good for the shareholders, good for patients, and will offer a great opportunity for the people of CAT, who have contributed to our success to date," Chambre said.

AstraZeneca's new biologics operation will be based at CAT's Cambridge, UK, headquarters and will be a distinct entity from the London-based pharmaceutical company's small-molecule capability. "There is no intention to restructure," said John Patterson, executive director of development at AstraZeneca. "The beauty of this is we want all of what we are acquiring."

He added that the aim was to preserve the distinct culture of CAT, which "will have a central role in our biologics strategy."

"We want to retain CAT executives and scientists," Patterson said. CAT staff who are still with the company a year after the takeover will receive a retention payment.

To capitalize on CAT's capabilities, Patterson said new resources will be added to develop the phage display and ribosomal display technology platforms across more therapeutic areas.

Apart from the cash pile and the underlying technology, CAT brings a 2.7 percent royalty stream from Humira, the first antibody drug based on CAT's technology to reach the market. The rheumatoid arthritis treatment, developed by CAT's partner Abbott Laboratories, had sales of $1.4 billion in 2005.

CAT has three products in the clinic: CAT-354 for severe asthma; GC-1008 for idiopathic pulmonary fibrosis, being developed with Genzyme; and CAT-3888 for B-cell malignancies. John Aston, chief financial officer of CAT, said there has been no discussion with Genzyme about a possible change of status, but there is a change-of-control clause in their agreement that allows Genzyme to take back development of the compound. AstraZeneca will assess the unpartnered products to decide whether to take them into its development pipeline.

In addition, there are six monoclonal antibodies discovered by CAT in development at various partners: ABT-874 (Abbott); LymphoStat-B, HGS-ETR1, HGS-ETR2, and Abthrax (Human Genome Sciences); and MYO-029 (Wyeth).

Since the end of 2002, CAT's strategy has been to license its platform technologies for others to do discovery. As a result, a number of drugs are in development at various companies, but the interest in those is financial only. AstraZeneca said it will honor all existing licensing agreements.

Analysts' valuations of CAT were around the £9 per share, before the deal was announced. But Jon Symonds, AstraZeneca's chief financial officer, said, "These largely recognize the physical, recognizable assets, and there is no recognition of the value of the technology." He added, "Valuing the technology base is difficult, because it is like valuing a key without the lock," but said AstraZeneca was offering a fair price.

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