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Proteomics to Remain Untouched in OGS, CAT Merger - at Least for Now

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In the pending merger between Cambridge Antibody Technology and Oxford GlycoSciences, which the two companies announced on Jan. 23, a lot of questions remain as to what the combined company will look like, or what its new name will be. But there are indications that proteomics might play a smaller role in the new company than it has at OGS.

The merged firm is to be dominated by CAT’s management team and shareholders, with approximately $419 million in cash, two approved drugs, and 14 therapeutic products in either clinical or pre-clinical development.

Following the completion of the merger, “the first thing we will have to do is achieve the integration of the two companies, which effectively means integration of the research and discovery activities,” said John Aston, CAT’s CFO. CAT’s drug discovery activities and OGS’ oncology business unit will become one, which will include OGS’ in-house use of proteomics in this area, according to Aston. Compared to OGS, CAT only possesses limited proteomics capabilities, he said. A “portfolio review,” the results of which will be announced in November, will determine the future focus of R&D projects. However, it is possible that changes will take effect before that date, Aston said.

Meanwhile, both OGS’ proteomics unit and its inherited storage disorders unit, which were created last fall, along with the oncology unit, “will continue to be run as separate business units in the way that OGS was running them itself,” he said. The proteomics unit, according to Aston, has about 80 employees at present, about 15 percent of the combined staff of 500. According to Andrew Lyall, OGS’ director of protein discovery, existing partnerships will remain intact, and new ones might be added.

OGS’ aim has been to make the proteomics unit profitable this year, and it could benefit from adding CAT’s antibody capabilities to its services. “There are obvious opportunities to synergize with the antibody platform, and in due course, we will be looking at how that enhances our product offering,” Lyall said. Having a broader range of services, he hopes, will “allow us to get more collaborators.”

But analysts do not believe that keeping the proteomics business is likely to be a long-term plan. “My guess is that the proteomics service division, as a standalone business, has few synergies with CAT in the long run,” said Ravi Mehrotra, an analyst who covers OGS for SG Cowen Securities. “Whether they eventually do some kind of trade sale or whether there is a management buyout is unclear,” said Simon Conway, an analyst who covers OGS for Bear Stearns and stressed that he had no financial ties to either company. Asked if the merged company might divest this unit at some point, Aston said “Yes, I think it is a possibility.”

The future significance of OGS’ proteomics technology for in-house drug development remains to be seen — its main use might be in target discovery rather than downstream drug development. According to Mehrotra, the technology is a good match with CAT’s antibody expertise. “If OGS has got this big treasure chest of proteomics-derived targets, as they say they do, putting it together with a company that creates monoclonal antibodies to them is logical,” he said.

According to Aston, “the relevance of [proteomics] to our business is that it gives us a potential source of targets, albeit unvalidated or semi-validated targets. It means that the need to go outside and hunt down targets is reduced.”

From Friendship to Marriage

To company observers, the merger proposal did not come as a surprise. “We knew that OGS was looking for an M&A partner, it was very well publicized by management,” said Mehrotra. “CAT was a candidate for that.”

According to Aston, the two companies have known each other for a long time and have had a research collaboration on antibody microarrays since 2000.

In order to complete the deal, shareholders from both companies have to agree to the merger. While no dates for shareholder meetings have been set yet, they are expected to happen by the end of February, according to Aston. After that, there will be a court hearing, and the merger is likely to be completed by the end of March. CAT will change its name sometime afterwards, but the new name is unknown at present.

The two companies have already identified corporate overhead, R&D, and real estate as areas of overlap that will help them save an estimated £10 million ($16.5 million) in the first year after the merger, but neither side provided more details.

CAT and OGS operate three facilities each, in Cambridge and Abingdon (near Oxford), respectively. The headquarters of the new company will be in Cambridge, according to Aston, suggesting that the OGS headquarters might be shed.

Also, personnel reductions are likely, Aston said, “but we can’t put a number on it at this stage.” At present, CAT has 290 employees, while OGS has a staff of 210.

Confirmant, a joint venture launched by OGS and telecommunications company Marconi in the summer of 2001 that has been developing a “Protein Atlas,” will remain intact, and OGS will continue to provide it with gene and protein data, Aston said.

— JK

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