Catco Reinsurance Opport... Share Discussion Threads

[matthu] 07/10/2004 12:34

Another sharp increase from 635 to 665 this morning.

[matthu] 04/10/2004 12:54

Here is an extract from an article in PharmExec. (Most of the article is about CAT and Abbott, the full article also considers the strategic alliance between GlaxoSmithKline and privately held Bay Area–biotech Theravance.)


Dangerous Liaisons

Why do most biotech–pharma alliances fail? The answer, in this first of two parts, begins with the messy reality of corporate relationships. Two case histories demonstrate the good, the bad, and the ugly side of strategic partnering.
May 1, 2004 By: Michael D. Lam Pharmaceutical Executive

Alliances are a favorite of corporate strategists everywhere. More than 10,000 interfirm collaborations were formed worldwide in 2000, double the number of five years before. Alliances now generate 25 percent of the top 1,000 public US companies' revenues, up from 7 percent in 1990.

Pharma and biotech companies are particularly prone to partnering. The 20 biggest pharmaceutical firms formed nearly 1,500 alliances with biotech companies between 1997 and 2002. According to Strategic Decisions Group, a consulting firm, "40–50 percent of products in development by global pharmaceutical firms are externally sourced," and "more than half of the current 20 best-selling prescriptions drugs are co-developed, co-marketed, or in-licensed." By 2007, in-licensing alone is expected to account for 40 percent of the revenues of pharma's top 20 companies.

What's driving biotech and pharma into each other's arms is the need to find complementary resources-pharma's innovation gap meets biotech's funding crisis-plus the desire to share risk and access new markets and information. Given these trends, it seems there are two kinds of pharma executives today-those participating in biotech alliances and those who will be soon.

What is the reality of alliance life? Two of the most celebrated biotech–pharma alliances in recent times can serve as an introduction. One, a phenomenally productive venture, scientifically and commercially, has degenerated into a bitter squabble over the spoils. The other, just formed, bears a striking resemblance to the most successful biotech–pharma hookup of all time.

Let's Make an Ordeal
In 1993, Knoll Pharmaceuticals, a divison of BASF, the German chemical company, called on UK-based Cambridge Antibody Technology (CAT). Knoll had six autoimmune disease targets. CAT had an advanced phage display technology ideal for identifying high-quality, lead-optimized candidates for human antibody drugs. CAT also had a vast library of antibodies (now more than 100 billion, according to the company). They were a perfect match.

The two signed an agreement (updated in 1995) that committed Knoll to pay up-front research fees to CAT and milestones along the way. Knoll would license promising products, assume their development and commercialization, and pay CAT royalties on any resulting sales.

Royalty or Loyalty

Amazingly, the first target they selected, tumor necrosis factor-alpha (TNFa), was successfully neutralized. The partnership was off to a promsing start, then, in 2001, BASF sold Knoll to Abbott Laboratories for $7.1 billion. The key asset was the TNFa candidate developed by CAT called D2E7.

In 2003, D2E7 was approved for the treatment of rheumatoid arthritis in the United States and Europe as Humira (adalimumab). That year, its first on the market, sales hit $280 milllion. This year they are expected to exceed $700 million, then rise to nearly $1.2 billion in 2005.

It took 10 years but the alliance hit a home run in its first at bat. Humira, Abbott claims, is "one of a few new potential blockbuster drugs to emerge from a collaboration between biotech and Big Pharma." CAT became not only the first British biotech to produce a potential blockbuster but also one of the few European biotechs to get anything to market.

In March 2003, with royalties due but not yet paid, Abbott told CAT it intended to cut the royalty rate from what analysts estimate to be between 5 and 6 percent to the contractual minimum, perhaps 2 percent. Multiply the difference by strong sales over a long time and it amounts to hundreds of millions of dollars at net present value. (CAT is not the only one affected. It owes a portion of its royalties to the Medical Research Council, the UK equivalent of NIH, the originators of phage display technology. MRC, in turn, owes something to the Scripps Institute.)

The timing of Abbott's pronouncement couldn't have been worse for CAT, which had made an all-stock bid to acquire Oxford Glycosciences (OGS). Investors responded to the news by knocking down CAT's shares, and OGS went to Celltech instead.

CAT, of course, disputed Abbott's decision. The parties first held private talks then engaged in four mandated mediation sessions, all of which proved fruitless. In November 2003, CAT filed legal proceedings in the UK High Court. A trial before a specialist judge in the patent division is likely - unless a settlement is reached - within 7-13 months.

Contract Killers
The source of the dispute in this uncommonly successful collaboration is two overlapping and possibly conflicting contractual clauses, Articles 5 and 12. Both relate to royalty offsets, a common element of biotech-pharma licenses that offers protection to licensors of intellectual property (IP).

To get a drug like Humira to market, you need three pieces of IP: one for the target, one for the product, and one for the downstream manufacturing process. Knoll owned the target IP, they came to CAT for the product IP, and they licensed the manufacturing IP from Genentech.

A company's claim to own intellectual property may not free and clear. Sign a license with one party and you may have to deal with others claiming their IP rights have been infringed. If that happens, the offset clause kicks in, letting you cut payments due the initial claimant in order to pay the rest.

Knoll had more than the usual reasons to request an offset (or anti-stacking) provision because CAT's patents were still pending when the contract was signed. Even Peter Chambre, CAT's CEO since 2002, admits: "It was quite natural for Knoll to seek some protection in the event that it had to take multiple licenses to operate the phage display technology described in our patents."

Back to the Future
This provision, Article 5, is fairly standard stuff. Translated from the legalese, it says that if Knoll needs to pay anyone else (other than MRC) to use CAT's technology, those payments will come out of CAT's end.

CAT, in any event, got its patents. Knoll-and, for that matter, Abbott-never had reason to pay anyone else for CAT's IP. So CAT had every reason to expect a full royalty. But it seems that Abbott is reading another clause, Article 12, to mean any patent royalties paid for any purpose-even those on the target (owed to Serono and Peptech) or the manufacturing process-and not just the IP licensed from CAT, could be used to offset payments to CAT.

Article 12, available from an SEC filing, says: "In the event that Knoll or its Collaborators must pay royalties or license fees to third parties under one or more claims of one or more patents to enable Knoll or its Collaborators to utilize or have utilized the inventions of the Patents, [content omitted] shall be credited to Knoll's royalty obligation to CAT for sales in that country where the patents exist." But it then goes on to state: "This offset shall not include royalties or license fees which are beyond the scope of the technology described in the Patents, for example fees paid to third parties for delivery systems."

The same language applies to the other five targets Knoll brought to CAT as well as the five additional indications for Humira now in late-stage clinical trials. Presumably, any resulting products will be subject to similar dispute. There's a lot to quarrel over. Abbott estimates Humira, all told, has a market potential of $14 billion by 2010.

In a statement, Abbott says, "The dispute is related to the proper interpretation of the royalty offset provisions of the agreement under which Humira was developed," but makes no attempt to square that interpretation with what the contract says. Meanwhile, Chambre says, "We strongly believe that the offset provisions were not designed for the purpose to which Abbott is putting them. We are seeking an outcome consistent with that, and are determined to get it."

...

Is Abbott–CAT a failure? Scientifically and commercially, no. CAT might yet win its suit and Abbott, should it triumph, may gain only a Pyrrhic victory. It could win the royalty battle but lose the reputational war. Indeed, a survey of 17 biotech CEOs conducted by Cambridge Healthcare and Biotech, unrelated to CAT, Abbott was rated the least desirable pharma licensing partner of the 20 named. (Bristol-Myers Squibb was tops.)

[pres1] 04/10/2004 12:51

Thanks for the info and research, chaps. I'm an investor and whilst not a regular contributor, do check out this thread to keep tabs with what's going on - which all seems very positive. In my experience people like Abbott try to run the small guys to the wire and then cave in when it sees they are serious - we shall soon find out!

[matthu] 04/10/2004 12:18

Legal hopes send Cambridge higher (Oct 1)
By Nick Hasell
Smaller capitalisation shares

CAMBRIDGE Antibody Technology (CAT) settled at a 12-month high on fresh hopes that the biotech firm will prevail in its court case with Abbott Laboratories that starts next month.

Although the withdrawal of Merck's flagship arthritis treatment - which sent its shares down 26 per cent - captured attention on Wall Street, the potential royalties to CAT from Humira, Abbott's arthritis drug, drew buyers in London.

The court case that will decide CAT's cut opens on November 22, and Lehman Brothers repeated its view that the UK company will win. If CAT's royalty rate rises from 2 per cent to 3 per cent, the US broker considers 650p an appropriate price. But it has a 950p target in the event that CAT's royalty rate returns to 5 per cent. CAT gained 87p at 624p, with the FTSE 250 up 6.3 at 6,2669.1.

[matthu] 04/10/2004 12:15

LONDON, October 4 (newratings.com) - Analyst Daniel Mahony of Morgan Stanley maintains his "equal weight" rating on Cambridge Antibody Technology (CAT.ISE), while raising his estimates for the company.

In a research note published this morning, the analyst mentions that Cambridge Antibody Technology's share price is expected to remain volatile over the next few months due to the uncertainty related to the company's Humira royalty dispute with Abbott. The court case is likely to come up for hearing in late November or early December, the analyst adds. Morgan Stanley expects Abbott to pay a royalty of either 1.5% or 4%. The EPS estimates for 2005 and 2006 have been raised from £-0.99 to £-0.57 and from £-0.70 to £-0.35, respectively.

[matthu] 02/10/2004 10:52

from ThisIsLondon:
Elsewhere, Cambridge Antibody got nailed by profit taking at the end of the day, closing down 9p to 615p.

The shares had hit an earlier high of 715p on news that Lehman Brothers had ratcheted up its price target to 820p from 650p, while it maintained its 'overweight' recommendation.

The move reflects a higher degree of confidence that the group will settle its Humira royalty dispute with Abbott Laboratories ahead of the November court case, or win outright.

[johnbea] 01/10/2004 20:56

lehman put out a bullish comment on thursday and p/of their argument was increased hope of an out of court sett with abbott before the trial date which is set for 22nd nov...

[matthu] 01/10/2004 14:04

Thanks, cuniform. Could be an exciting time leading up to the end of the year.

[cuniform] 01/10/2004 13:55

correct matthu

shifting will occur from all cox2 to older non steroidals. perhaps with the adition of PPI's (proton pump inhibitors) such as omeprazole to replicate the gastroprotection. All stuff off patent.

It is more likely that people are waking up to the possibilities of an out of court settlement or judgement in favour of CAT.

Switching from vioxx to humira is fanciful speculation.

[matthu] 01/10/2004 11:44

My point is that Vioxx is a so-called COX-2 inhibitor - the second such inhibitor developed. (Pharmacia's Celebrex was the first.)

COX-2 inhibitors are a class of drugs which selectively inhibit COX-2, an enzyme involved in the inflammation pathway, while sparing COX-1, thereby reducing gastrointestinal toxicity.

Enbrel, Remicade and Humira target the effects of TNF-alpha. TNF-alpha is one of the most important cytokines involved in rheumatoid arthritis through its entanglement in the cascade of inflammatory reactions.

I understood that Vioxx and Humira were complementary therapies. Wouldn't withdrawal of Vioxx would be more likely to benefit Celebrex than Humira? Although if all COX-2 inhibitors are implicated then Humira might benefit considerably.

I should stress that I don't know what I'm talking about (!) but if anybody can enlighten me, I'd be glad!

[aceofdiamonds] 01/10/2004 09:23

"Cambridge Antibody Trust surged ahead today, on the back of news that US peer Merck has withdrawn its arthritis treatment Vioxx from the market after a study found it raised the risk of heart attacks and strokes.

The group is currently awaiting the trial, set for November, for its legal battle with partner Abbot after alleging that the US group was not paying enough royalties for CAT's arthritis treatment Humira."

[matthu] 01/10/2004 09:17

I still fail to see any connection between super aspirin and CAT? Am I missing something?

[aceofdiamonds] 01/10/2004 09:13

Should settle down at £7.50 awaiting outcome of Novemebers case. Other views?

[marwalker] 01/10/2004 08:29

The Merc 'super asprin' story was reported yesterday on R4. Unlike the report above it states that the drug was used for rhumotiod arthritus .... thats a good clue re. the price rise...

[aceofdiamonds] 01/10/2004 08:07

bjfanc - and your point is? How much of the existing £2bn market do you think CAT could share in and what would be their royalty share (ignoring the current legal wrangle).
Ace

[bjfanc] 30/9/2004 17:04

Merck withdraws 'super aspirin' painkiller
By David Firn in London
Published: September 30 2004 15:03 | Last updated: September 30 2004 15:03

Shares in Merck fell more than 25 per cent on Thursday after the US pharmaceuticals company withdrew Vioxx, its $2.5bn-a-year painkiller.


The shares plummeted after Merck said it was taking the blockbuster off the market voluntarily because of fears that it raised the risk of heart attacks and stroke, citing the results of a three year study.

"In this study, there was an increased relative risk for confirmed cardiovascular events, such as heart attack and stroke, beginning after 18 months of treatment in the patients taking Vioxx compared to those taking placebo," Merck said in a press release.

The worldwide withdrawal could reduce 2004 earnings by 50-60 cents a share, wiping up to $750m from fourth quarter sales.

The withdrawal is a big blow for Merck, which is already reeling from the failure of two of its most important new medicnes in clinical trials.

Vioxx was touted as a safer alternative to painkillers such as aspirin when it was introduced in 1998. But the "super aspirin" has been under a cloud of suspicion since 2002 when European authorities launched an investigation into the safety of Vioxx and other drugs in the sale class, known as Cox-2 inhibitors.

In a news conference in New York, Merck said it had considered whether to continue to market the drug with enhanced warnings on the label about the potential cardiac risks, but had decided not to.

"Given the availability of alternative therapies, and the questions raised by the data, we concluded that a voluntary withdrawal (of Vioxx) is the responsible course to take," Raymond Gilmartin, the company's chairman and CEO, said.

Merck is now likely to face a host of legal actions over Vioxx, including personal injury lawsuits from the victims of cardiac problems, or their relatives. "We have substantial defences in these cases and will defend them vigorously," said Kenneth Frazier, Merck's general counsel.

The US Food and Drug Administration issued a statement acknowledging Merck's action.

"Merck did the right thing by promptly reporting these findings to FDA and voluntarily withdrawing the product from the market," said Dr Lester Crawford, acting FDA commissioner. "Although the risk that an individual patient would have a heart attack or stroke related to Vioxx is very small, the study that was halted suggests that, overall, patients taking the drug chronically face twice the risk of a heart attack compared to patients receiving a placebo."

The statement said that other studied had "recently" suggested that patients taking Vioxx faced "an increased risk of cardiovascular events".

"FDA was in the process of carefully reviewing these results, to determine whether further labelling changes were warranted, when Merck informed the agency of the results of the new trial and its decision to withdraw Vioxx from the market," the statement said.

The FDA said it would "closely monitor other drugs in this class for similar side effects".

The UK's drug regulator advised patients taking Vioxx to contact their doctors to arrange an alternative prescription. It said the drug is used by an estimated 400,000 patients in the UK.

US markets were seeking to assess the impact of the withdrawal of Vioxx on rivals such as Pfizer's Celebrex and Bextra and Novartis' Prexige, approved in the UK and Australia, but awaiting approval from the US and the rest of the European Union.

Merck is currently awaiting US approval Arcoxia, a second-generation Cox-2 inhibitor.

[pres1] 30/9/2004 16:29

Must be a lot of people who are beginning to think
1) the court case will confirm CAT's postion re royalties and,
2) that there are other parts of the business which are under valued. this looks as if it could break out big time.

[aceofdiamonds] 30/9/2004 15:42

Does anyone know what is driving this share price at the moment, I can find out no info.

[matthu] 30/9/2004 10:20

The only other news has been

Human Genome Sciences Reports Results of Ongoing Phase 1 Clinical Trials of HGS-ETR1 in Patients With Advanced Cancers


and

Human Genome Sciences Reports Initial Results of Phase 1 Clinical Trials of HGS-ETR2 (TRAIL-R2 MAB) in Patients With Advanced Cancers

[matthewa] 30/9/2004 09:17

Any news or arb boyz Long CAT short BGC?

[matthu] 24/9/2004 21:45

I would like to think that the share price will appreciate between now and end November - simply as more and more investors latch onto the possibility of a big win.

[pres1] 24/9/2004 17:45

Substantially more sellers than buyers, so the price goes up - somebody collecting? Weird.