BioWorld International Correspondent

LONDON - Cambridge Antibody Technology Group plc plans to acquire Oxford GlycoSciences plc in an all-share deal valuing OGS at £109.6 million (US$177 million). The deal would create a company with a £260 million cash pile and a market capitalization of around £289 million.

Peter Chambre, CEO of CAT, told BioWorld Today, "When we talked after our results last November, we said we wanted to create a leading biopharmaceutical company, which by 2008 was both profitable and had world-leading products. This merger is a significant step forward."

In the biggest deal in European biotech since Celltech plc acquired Chiroscience plc in 1999, shareholders in CAT will receive 0.3620 new CAT shares for each OGS share. That values OGS shares at £1.955, a premium of 28.2 pence to the closing price Monday. However, the £109.6 million valuation is a significant discount to OGS's cash balance, which stood at £136.4 million on Dec. 31.

An OGS spokesperson told BioWorld Today the discount to cash was justified because OGS's share price has been stuck around £1.50 (giving it a market capitalization of £82.8 million) for the past five months. "This is despite 15 announcements that were all very, very positive."

"The [OGS] shareholders will get a 43 percent premium, which is pretty good, and they will also get a share in the new entity," the spokesperson said.

Following completion of the merger, expected in March, CAT shareholders would own 64.3 percent of the combined company.

OGS shares (LSE:OGS) rose 18 percent to £1.80 Thursday, while CAT's shares (LSE:CAT) fell 40 pence to £5.

Chambre, who will retain his position in the merged company, said there are four core reasons for the merger. "It adds products to the portfolio, with two approved products, seven in clinical development and seven preclinical. We have previously said we wanted to build an oncology focus and OGS has a significant number of early stage oncology products and targets."

The move will also strengthen CAT's discovery and development skills. In particular, OGS has a strong medicinal chemistry group, giving CAT the ability to develop small-molecule drugs as well as antibodies. "Most major biopharmaceutical companies have large- and small-molecule capabilities," Chambre said. "When you look over time we will have a leading position in antibodies and small molecules."

OGS also has more clinical development skills than CAT, having taken its lead product, Zavesca, all the way through to market, while CAT's lead in-house product is in Phase III trials.

Given the significant extra financial strength, Chambre said it would be possible to select products for internal development and to retain more value. CAT's leading antibody, Humira, due to be launched this month by Abbott Laboratories, is expected to sell more than $1 billion per annum, but CAT's royalty rate is below 5 percent.

Chambre added that doubling CAT's cash "reduces the chance that we will have to go back to the capital markets for more money."

The CEO of OGS, David Ebsworth, has restructured the company, cutting staff and splitting it into three separate business units - inherited storage disorders, proteomics and oncology - since he took over in July 2002.

Chambre said the targets OGS has discovered to date using proteomics will be taken into the CAT portfolio, but it will not use the proteomics capability in future. "Proteomics will be a separate business unit, which will be cash-neutral and profitable in 2003-2004."

As separate companies the two were planning to spend £80 million in total on R&D this year. "This is too much," Chambre said. "We have identified overlaps in administration and real estate and some in R&D, which will generate savings of £10 million in the first year."

Further savings are expected from a portfolio review to decide which products to take forward.

OGS brings with it one product, Zavesca, for treating Gaucher's disease that has European approval. But otherwise the pipeline is very thin, with just one clinical-stage product, OGT923, an analogue of Zavesca, in Phase I trials. As a result, although the merger gives CAT more scale and cash, it is unlikely to accelerate its progress to profitability.

Chambre said OGS will remain at its site in Abingdon, though the facility will be scaled down. The corporate headquarters will be in Cambridge, where CAT has just moved into new premises, named after Cesar Milstein, the discoverer of the monoclonal antibody technology around which CAT was formed. The name of the company will be changed at some point in the future.