“Certainly, in that acquisition as well as a number of recent licensing deals by AstraZeneca and others, we are seeing companies really looking at the UK as a potential source of intellectual property.” While AstraZeneca shareholders may have balked at paying such a premium, analysts say the price was fair given CAT’s technology platform in monoclonal antibodies.

These antibodies are used in diagnostics and basic biomedical research and are increasingly seen as the way forward for treatments for diseases such as cancer.

AstraZeneca, a global pharmaceutical with vast resources, believes that with increased investment it will be able to roll out CAT’s technology platform across a number of therapeutic areas, such as respiratory, cancer, infection, neuroscience, cardiovascular and gastro-intestinal.

The company plans to combine its existing scientists in this area with CAT’s to create a super biological research unit based in Cambridge.

“AstraZeneca could get a lot of drug candidates out of this and CAT also has a promising asthma treatment in there, ” says Jonathan Senior, biotechnology analyst at Evolution Securities.

CAT is already making revenues from a number of products that it has licensed, including its rheumatoid arthritis treatment Humira.

“I worked out that just the royalties on future sales of Humira are worth GBP10 a share. I think it was a fair deal, ” says Neophytou.

If this was the case, however, why was it not all reflected in CAT’s share price pre-acquisition?

“A lot of biotechs, especially in the UK, have been hugely undervalued for a number of years, ” says Neophytou.

“We’re seeing a lot of good quality assets with low share prices.” Biotech stocks, in general, have been out of favour since the stock market bubble burst and investors became more risk adverse.

Biotechs, which are focused on the research and development of drugs, suck up lots of capital, take a long time to generate significant revenues and are constantly battling the risk that their science could fall at the final hurdle.

But five to 10 years ago, analysts say, they were also following some less than robust business models by leveraging their assets to the hilt and rushing products to market.

Neophytou argues that UK biotechs have really cleaned up their act in the last couple of years. A funding drought from the stock market meant that biotechs had to increasingly rely on collaborations and licensing agreements with Big Pharma, which were looking for larger clinical trials and a higher standard of scientific proof before parting with their cash.

This smarter way of doing business, however, has not yet been appreciated by the average investor. The general market also often does not understand the mechanics of the science involved.

“It’s always been the case that the pharma industry has been able to do thorough due diligence on biotechs and their products and technology platforms much better than the public would have been able to, ” says Neophytou. “Pharmaceuticals are specialists in their field and have a lot of scientists backing them up to say whether this stacks up.” In the case of CAT, AstraZeneca also got a bit of an inside view long before any deal was even brokered. In 2004, the two companies entered a collaboration and license agreement to jointly discover and develop human monoclonal antibodies. AstraZeneca was the company’s largest shareholder with a 19.2-per cent stake.

David Brennan, chief executive of AstraZeneca, says that it was this successful partnership that led his company to believe that CAT’s scientists could work well within the larger entity.

The deal, however, does show that there is some shift in the balance of power between pharma and biotech.

Over the last few years, there have been examples of Big Pharma picking up assets at distressed prices as a reflection of the lack of stock-market appetite. But with the next generation of drugs becoming more and more specialised and taking longer to develop, these giants are finding it difficult to keep up the momentum of products based on their in-house science. Now more than ever, they are having to rely on the innovation of biotechs to fill up their drug pipelines and pay a good price for the privilege.

Brennan says that the CAT deal will help address the company’s long-term pipeline. And he makes no secret that there would likely be more deals ahead.

“We see CAT as an important step and central to what we are doing. But we do expect to continue to look for opportunities for licensing deals and acquisitions in this area, ” he says.

NEED TO KNOW

THE FACTS AstraZeneca has made a recommended cash offer of GBP13.20p per share (or GBP567 million) for 80.8-per cent of Cambridge Antibody Technology. It already holds a 19.2-per cent stake in the company. The deal values the whole of CAT at GBP702m.

BACKGROUND Since 2004, the two companies have had a collaboration to jointly research human monoclonal antibodies.

NEED TO KNOW MORE?www. cambridgeantibody. com Outlines the company’s activities.

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