Abbott disputes Peptech patent infringement

Peptech's shares (ASX:PTD) nose-dived today, dropping as low as AUD$1.23 after news that the company was embroiled in another patent dispute over its anti-TNF patents, this time with licensee Abbott Laboratories.

Abbott said its recently approved arthritis drug Humira, estimated to be worth US$250 million in sales for 2003, did not infringe the claims of the licensed Peptech patents.

Abbott's move comes close on the heels of news that Peptech's dispute with Johnson & Johnson subsidiary Centocor has entered arbitration. But the Abbott agreement does not include an arbitration clause, which means the two companies could eventually go to court over the issue, if it is not resolved by discussion.

Peptech has supplied Abbott with substantial evidence to back up its position. Chairman Mel Bridges said Abbott had invited Peptech to discuss the issue, and had even offered to pay the disputed royalties into an account pending resolution.

"We need to sit down face to face with Abbott and ascertain where they are coming from," Bridges said. "There is a real sense of urgency in getting across the table from them."

According to Bridges the presumption is that Abbott is disputing the binding regions of the anti-TNF antibody. Peptech's opinion is that the antibody binds to sites covered by the Peptech patents, therefore the product infringes and the agreement is valid.

But there is also a suspicion in the financial community that Abbott is seeking to reduce the royalties that it has to pay on Humira. The pharmaceutical company has also been looking at its licence agreements with Cambridge Antibody Technology, the British company which, along with Abbott subsidiary Knoll, initially developed the Humira antibody. Peptech's licence agreement with Abbott was originally signed with Knoll, before Abbott acquired it in January 2001.

Without the protection of an arbitration clause, however, the pharmaceutical company is leaving itself exposed to counter-moves by Peptech, a move that could backfire on the bigger company.

"I must say I'm a little surprised that Abbott is doing this," said Alison Coutts, of investment bank EG Capital. "There are no fall-back arbitration clauses if the discussions fail. And there is a lot at stake here for Peptech, for Abbott, even for Centocor and Johnson & Johnson."

Coutts said Peptech's patents put the company into a strong position to fight back, and noted it had a good amount of cash in the bank to support it after a $10 million placement raised by EG Capital earlier this year. The company also had potential for more lucrative agreements from its animal health division, she said.

"It's terribly unfortunate for Peptech. These patents are very powerful, and when a company is sitting on such powerful stuff, they have to be prepared to defend it," she said.

But the possibility of a protracted dispute would create uncertainty for the company, according to Coutts, who said the market would be waiting to see what Peptech's strategy. "They are probably in for a rough ride," she said.

Bridges said the company would turn its efforts to dealing with the dispute as quickly as possible, now that the Centocor dispute had entered arbitration. He remained confident that the dispute would be satisfactorily resolved.

"One dispute is enough for a company, two is an interesting situation," he said. "But a positive resolution of both would see us in blue sky country."

Peptech's share price had dropped 32.45 per cent to $1.27 by press time, with more than 15 million shares traded.