AZ agrees to buy up CAT

In a move that underlines its recent drive to buy in biological drugs to strengthen its pipeline, AstraZeneca (AZ) has agreed to buy Cambridge Antibody Technology (CAT) in a deal valuing the UK biotech firm at £702m.

AZ said it had agreed to pay 1,320 pence a share in cash for the UK's largest biotech company, representing a premium of 67 per cent of CAT's closing share price on Friday (May 12). AZ already owns a 19.2 per cent stake in CAT from a research deal in 2004, and will have to pay £567m to buy the remainder.

CAT, which has yet to reach profitability, is considered a world leader in developing drugs from antibodies. Analysts have forecast sales of such drugs will more than double by 2010 from $14bn in 2005.

The acquisition will give AZ access to royalties on the sales of rheumatoid arthritis blockbuster, Humira, which CAT co-developed with Abbott Laboratories. It will also give AZ access to a pipeline which includes two potentially hot prospects, CAT-3888, in phase II development for cancer, and CAT-354, an asthma treatment currently in phase I trials.

CAT chairman, Dr Paul Nicholson, said the board had unanimously decided to recommend the offer to shareholders.

ìThe offerÖprovides shareholders with an attractive premium through a cash offer,î he commented.

ìA company of our size simply doesn't have the resources to realise its potential,' said CAT chief executive officer, Peter ChambrÈ. ìThe offer represents the next logical step in the successful development of CAT. By enabling the resources of AstraZeneca to be committed to realising the full potential of the CAT technologies and capabilities, there is an opportunity to develop a global leadership position in biological therapeutics and a major pipeline of new biological medicines for the benefit of patients.î

AZ said its new acquisition would be central to its plans to develop a major R&D function to deliver biological products. The new organisation will be led from CAT's Cambridge headquarters.

AZ executive director of development, John Patterson said that both companies now knew each other well and could work together effectively: ìOur alliance is delivering and the discovery output has either met or exceeded all of the targets we have set. We see this deal as both significant and strategic - it has the potential to make a substantial difference to the way we discover and develop medicines.î

Analysts welcomed AZ's push to build up its biologics pipeline but said it had paid a full premium for CAT and the deal did little to alleviate concerns about its short-term prospects.

Paul Diggle, analyst at Nomura Code Securities, said the deal meant AZ's pipeline would start to look fuller, but not for a further two to three years.

AZ said the deal is expected to close by the end of June.