Peptech down as European royalties cease

Peptech's share price plunged more than 50 per cent today after announcing that it had ceased receiving European royalties from US-based Centocor.

The US company, a subsidiary of Johnson & Johnson, has stopped paying royalties to Peptech for Centocor's arthritis drug Remicade.

The conflict has arisen over Peptech's anti-tumour necrosis factor (TNF) antibodies patent, which was recently granted in the US. Centocor claims that Remicade does not fall within the claims of the patent in both the granted European and US patents, and has requested that Peptech provide them with more information on the patents.

According to a statement put out by Peptech, the company is very confident that Remicade falls within the claims of both the European and US patents, both from a scientific and a legal standpoint.

But if the drug doesn't fall within the scope of the patents, it will have a big effect on Peptech's 2003 results. Remicade is said to be one of the fastest-growing drugs in the US, with 2003 sales expected to reach $US1 billion.

"Our 15 years of working and patenting in this field and our extensive and detailed testing gives us a very high degree of confidence in our position. Peptech continues to believe that royalties are payable on the sale of Remicade in the USA and Europe and we will be making every effort to resolve this issue speedily and in our favour," Peptech managing director Stephen Kwik said.

UBS Warburg analyst Kiara Bechta-Metti said that it was hard to know what the long-term effect would be on Peptech, but suggested that the loss of cash flow if the royalties and licence fees were lost could significantly affect the company.

"I thought it was ambitious to go after these large companies with patents with very broad claims," she said.

Bechta-Metti said that further examination of the claims of the patents might shed some light on the situation.

Revenues from other TNF dugs, including Abbott Laboratories' D2E7 might also be affected by Centocor's decision.