AstraZeneca agrees to buy CAT

LONDON (Reuters) - AstraZeneca (AZN.L) is to buy Cambridge Antibody Technology (CAT.L) in a deal valuing it at 702 million pounds ($1.3 billion), extending a drive into biological medicines as it looks to restock its depleted drugs pipeline.

AstraZeneca said on Monday it had agreed to pay 1,320 pence a share in cash for Britain's biggest biotech company, 67 percent above Cambridge Antibody Technology's (CAT) closing price on Friday.

Europe's third-biggest drugmaker, which already owns 19.2 percent of CAT from a research deal in 2004, said buying the rest of the shares would cost it 567 million pounds, and would not affect its earnings guidance or share buyback program.

CAT, which has yet to make a profit, is a world leader in making drugs from antibodies, the body's natural immune defenses. These generally have fewer side-effects than conventional, chemistry-based medicines.

Major pharmaceutical firms are battling to strengthen their position in the fast-growing market for biological drugs such as antibodies, with analysts forecasting sales of antibody-based drugs will more than double by 2010 from $14 billion in 2005.

"This is part of transforming our long-term capabilities," AstraZeneca's executive director of development John Patterson told Reuters. "From this, up to one in four of our later-stage molecules by 2010 will be from a biologicals background, whereas previously we've had little or no capability."

Analysts welcomed AstraZeneca's drive into biological medicines and said the hefty premium paid to buy CAT was in line with U.S. group Amgen Inc's (Nasdaq:AMGN - news) recent purchase of U.S. antibody specialist Abgenix.

But some said the deal would do little to address the Anglo-Swedish group's short-term dearth of new drugs.

"AstraZeneca is buying up all these companies, but I'm not sure they're going to produce much over the next three years," he said, retaining a "sell" rating on AstraZeneca shares.

EARLY-STAGE RESEARCH

"What also concerns me is, if these companies are that good, why aren't others trying to buy them? There's no auction."

Shares in CAT, which provided technology used in Abbott Laboratories blockbuster arthritis drug Humira, rocketed over 60 percent to as high as 1,295p, near AstraZeneca's bid price.

AstraZeneca shares were down 1.4 percent at 2,815p, within a benchmark FTSE-100 index (^FTSE - news) down 2.3 percent.

AstraZeneca has already signed deals potentially worth over $2 billion recently as it seeks to rebuild a drugs pipeline holed by the failure of a series of medicines in late-stage clinical trials, including Exanta for blood clots and Iressa for cancer in 2004, and more recently Galida for diabetes.

AstraZeneca's Patterson said the research project with CAT had met or exceeded all its targets and that the two firms expected to propose the first compound for development by the end of this year.

"That's faster than you would normally expect," he said.

But with clinical trials only likely to start in 2008, that would still put a marketable product many years away.

By buying CAT, AstraZeneca will not have to share the profits of any drugs resulting from their collaboration.

The deal will also give AstraZeneca one product in Phase II clinical trials, and another in Phase I, as well as CAT's royalty of 2.7 percent on arthritis drug Humira, which made $1.4 billion of sales in 2005.

CAT is the latest in a long line of promising British biotechnology firms to be snapped up by large pharmaceutical companies, with Belgium's UCB (UCBBt.BR) buying Celltech in 2004 and U.S. group Chiron acquiring PowderJect in the same year.

AstraZeneca is being advised by Goldman Sachs, while Morgan Stanley is acting for CAT.

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