Remicade royalty refusal beggars analysis

US biomedical company Centocor continues to puzzle analysts and investors alike with its refusal to pay royalties on its market-leading rheumatoid arthritis therapy Remicade to small Sydney biotechnology company Peptech.

Centocor's obduracy -- or brinkmanship -- makes little sense because of its potential to jeopardise its market leadership, according to leading biotech analyst Alison Coutts, of eG Capital in Sydney.

Investors are selling off Peptech, even though the company has something of potentially enormous value to Centocor: a potential successor to Remicade.

Peptech’s single-domain antibody, developed by UK antibody-engineering company Domantis, has shown considerable promise in vitro, and is about to enter pre-clinical trials, according to Peptech investor relations manager Dr Paul Schober.

Remicade, one of the world's most lucrative drugs, is a 'humanised' monoclonal antibody that targets the Tumour Necrosis Factor-1 (TNF-1) receptor. By blocking the receptor, it switches off the inflammatory response that causes rheumatoid arthritis and other autoimmune diseases including the collagen disorder scleroderma, and inflammatory bowel disease (Crohn's disease).

Peptech's patents, granted in Europe and the US, cover any antibody-based therapy targeting the TNF-1 receptor.

Centocor does not yet have a second-generation successor for Remicade, according to Coutts, and unlike its European rival, Abbott Laboratories, has no agreement with Domantis to develop single-domain antibody therapeutics.

Not only does Centocor lack access to Domantis' proprietary technology for engineering single-domain antibodies, it may not be able to negotiate access, given that Domantis is 30.3 per cent owned by Peptech.

Abbott agreed last year to pay Peptech royalties on its own anti-TNF-1 therapeutic, D2E7, and has contracted Domantis to develop a single-domain antibody therapeutic -- although the target is not known, Abbott also does not yet have a successor to D2E7.

Coutts says single-domain antibodies will combine greater flexibility of administration with fewer side-effects -- they can be tailored for oral delivery, or to disappear from the body within hours. Combined with their more specific mode of activity, these attributes reduce the side-effects associated with current monoclonal antibodies.

If Peptech's new anti-TNF-1 therapeutic comes up trumps in human clinical trials, both Abbott and Centocor would be high on the list of potential suitors for Peptech, along with other big biomedical companies like Amgen.

Coutts says Amgen markets its own rheumatoid arthritis therapeutic, Embrel, an antibody-like molecule. But the molecule is very expensive and complicated to make, as well as being much larger and less specific in its activity than a single-domain antibody -- so Peptech's single-domain antibody would have allure to Amgen as well.

Coutts says Centocor's parent company, Johnson and Johnson, has a reputation for being hard-headed, but "Centocor would be really stupid to continue too far down this path.

"Until now, it has been playing with Peptech, dragging [the patent dispute] out, believing that because it is dealing with small fry, there's no downside. But that will change."

The downside for Centocor, says Coutts, is that if it no longer has a royalty agreement with Peptech, then Peptech could do a new deal with a company like Abbott or Amgen, for exclusive rights to its second-generation product.

Coutts says Centocor has made great play of Johnson and Johnson's recent $US2.4 billion takeover of US biomedical company Scios, which has identified a novel anti-arthritis target -- an intracellular signalling molecule called MAP kinase -- that could be a candidate for an oral drug.

But she says the target is unproven, and Scios' therapy is only in Phase IIa clinical trials -- single-domain antibody therapies are likely to be much more specific in their action, and work against well-characterised cellular molecule, the TNF-1 receptor.

J&J acquired Scios because the company has a major heart drug in late-phase FDA clinical trials -- not because of any confidence in Scios' as-yet unproven arthritis therapy.

"Like most big pharmaceutical companies, Centocor needs to have many new drugs in its own development pipeline, and it doesn't," Coutts says. "The best thing is for it to adopt a more conciliatory, cooperative stance with other biotechs like Peptech."