BioWorld International Correspondent

SYDNEY, Australia - Investors slashed the share price of Peptech Ltd. by more than 50 percent last week when the company announced that there is a dispute over a royalty stream expected from Centocor Inc., a subsidiary of drug giant Johnson & Johnson.

Company spokesman Paul Schrober said Peptech had been told little by Centocor except that the company now does not believe key tumor necrosis factor antibody patents held by Sydney-based Peptech in Europe and the U.S. cover Centocor's Remicade, used to combat arthritis.

As a result, Centocor has stopped making previously agreed royalty payments on sales of the products in Europe and will not agree to payments on U.S. sales.

That is contrary to previous, confident statements by Peptech that it has a strong position with the U.S. patents, granted by the U.S. Patent Office in September, and that Centocor is likely to pay royalties on sales in the U.S. (See BioWorld International, Oct. 9, 2002.)

Market reaction was mixed. Broker Baker Young in Melbourne issuing a note saying that Centocor's declaration was the opening move in negotiations over U.S. royalty payments, but investors quickly cut the share price from just above A$2 to A$0.96 before it bounced back. By close of business Friday the share price was at A$1.05. In February it was above A$5.

However, Schrober said that the company still expects to receive payments. He said that first it will reply to a letter from Centocor asking for additional information on the patents. If the two companies remain in dispute, then it will refer to the license agreement in which Centocor originally agreed to make royalty payments. It contained a provision for arbitration, so it would not be necessary to go to court.

He cannot make any useful estimate about how long the dispute will take to resolve apart from saying that it would take "a few months."

A company statement said: "Peptech, in consultation with its legal and patent attorneys in Australia, England and the U.S., is very confident that the scientific data and legal position will confirm that Remicade does fall within the claims of both the European and U.S. patents."

Peptech researched TNF antibodies in the late 1980s and, although the original research did not contribute to the development of Remicade, was able to apply for patents worldwide with the prior claim. Peptech also holds the TNF patents in Australia, Europe and Canada.