Cambridge Antibody/Oxford GlycoSciences merger "positive"

The announced merger between UK firms Cambridge Antibody Technology andOxford GlycoSciences (Marketletter January 27) "is a positive and logical strategic move for both," according to analysts at Morgan Stanley, who note that CAT is set to take the dominant role and will issue 0.362 shares for each of OGS, valuing the latter at about L103 million ($165.6 million) at close on January 23. They say the price, a 28% premium on OGS' pre-offer closing, seems reasonable to shareholders.

The major reason for the merger, in the view of the MS analysts, is to create a new company with a significantly-enhanced ability to discover novel drugs - both antibodies and small molecules. Until now, they say, CAT has lacked a clear therapeutic focus, and this deal addresses that problem, noting that OGS has identified - and generated considerable intellectual property on - a number of novel oncology drug target; it has also developed assays and animal models to evaluate potential drug candidates.

The new company will have increased financial resources and enhanced drug discovery and development capabilities. Therefore, the analysts believe this should reduce the perceived risk regarding the long-term sustainability of CAT's business, though it may take 18-24 months for tangible evidence of this aspect of the merger, ie the first drug candidates entering the clinic.