LONDON Cambridge Antibody Group plc is acquiring Drug Royalty Corp. (DRC) in an all-share deal that values DRC at £55 million (US$78.5 million) and gives CAT an income stream to help fund its expensive clinical development program.

DRC, based in Toronto, has an international portfolio of royalty interests that includes a contract with CAT and stakes in a number of drugs, including Amgen Inc.’s Neupogen, Bristol-Myers Squibb Co.’s Taxol and Johnson & Johnson’s Remicade. For the year ended Aug. 31, 2001, DRC reported earnings before taxes of C$9.1 million, on revenues of C$21.1 million (US$13.1 million).

David Chiswell, CEO of Melbourn, UK-based CAT said, “DRC’s net cash position will provide CAT with further funding, as [CAT] continues the creation and development of its own growing pipeline of new antibody drugs. CAT will also benefit from indirectly acquiring the benefits of its royalty-based obligations under its existing contract with DRC.” DRC made a venture capital investment in CAT in 1994, in return for 3 percent of CAT’s income until 2009.

The offer gives DRC shareholders C$3 per DRC share, which they may take in either CAT shares listed on the London Stock Exchange or ADRs listed on Nasdaq. The two largest shareholders in DRC, MDS Capital Corp. and Canadian Medical Discoveries Fund, have agreed to the offer.

Emma Palmer, an analyst at WestLB Panmure, said the move was surprising. “The surprise is that CAT has bought not an R&D-based entity with technologies and products, but a company whose main assets are royalty interests in drugs.” She added the deal is an innovative way to access a cash cow and shows other biotechnology companies it is not necessary to buy a product or a company to do this.

With £156 million in cash at the end of September, CAT was already well funded. It currently has six antibodies in clinical development, with the lead product, D2E7 for the prevention of scarring after surgery for the eye disease glaucoma, expected to launch next year.

CAT said it does not plan to expand DRC’s portfolio any further, and as a result will not retain DRC’s management.