AstraZeneca makes offer for CAT

AstraZeneca (AZ) has signalled the start of its new long-term strategic investment in biological therapeutics by making a £702m cash offer for Cambridge Antibody Technology Group (CAT).

The offer, which equates to 1,320 pence per CAT share, represents a 66.9% premium on the closing mid-market price (791 pence) of CAT's shares on the London Stock Exchange and an 88.0% premium on the average share price (702 pence) over the last 12 months. CAT reported an operating loss of £9.3m for the year ended 30 September 2005 and a loss of £42.2m for 2004.

AZ acquired a 19.2% stake in CAT following a 2004 collaboration and licence agreement between the companies for the discovery and development of human monoclonal antibodies. It intends to use CAT to develop a new r&d organisation focused on biological therapeutics that will be "distinct from but complementary to" its own small molecule capability. To be based at CAT's headquarters in Cambridge, UK, the deal will provide AZ with an expanded pipeline of biological therapeutics addressing unmet medical needs in its targeted disease areas.

AZ will also use its resources and capabilities to develop CAT's technology platform in new areas, including respiratory and inflammation, oncology and infection, neuroscience, cardiovascular and gastro-intestinal.

The acquisition will also provide AZ with a royalty stream on sales of Humira - a treatment for rheumatoid arthritis licensed to Abbott that generated $1.4bn in 2005; potential milestones and royalties on CAT's other licensed products, and access to CAT's proprietary pipeline, which includes CAT-3888 for B-cell malignancies, GC-1008 for idiopathic pulmonary fibrosis and CAT-354 for severe asthma. Furthermore, CAT 's balance of net cash and liquid resources stood at approximately £152m on 31 December 2005.

"The success of the collaboration [with CAT] over the last two years has demonstrated AZ's and CAT's complementary skills and expertise," said David Brennan, AZ ceo. "It is our intention to both expand and broaden the scope of our discovery and development pipeline and we expect that, by 2010, up to a quarter of our candidates for full-scale development will be biological therapeutic agents."

The directors of CAT will unanimously recommend acceptance of the offer to CAT shareholders.

"The offer recognises CAT's leading position in the discovery and development of new antibody medicines and provides shareholders with an attractive premium through a cash offer," said Dr Paul Nicholson, chairman of CAT. "The offer represents the successful culmination of CAT's development since its founding in collaboration with the Laboratory of Molecular Biology of the UK Medical Research Council."

All of CAT's 300 employees will retain their positions, although Peter Chambre, who has described the proposed deal as "the next logical step in the successful development of CAT", will leave his position as ceo when the offer becomes unconditional.