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CAT Fight with Abbott: The Calculus of Royalty Offsets and Partnering Reputation

The fight between Abbott Laboratories and Cambridge Antibody Technology over two partly overlapping royalty-giveback clauses in their contract on Humira has implications far beyond the money--which itself is not inconsiderable. Abbott could theoretically save itself some $60 million in royalty fees, but it could also win itself a name for playing hardball with its partners, even in the event of a major drug development success.

There have been disputes over biotech/pharma contracts since the beginning of the industry—the most famous being the bitter row between Amgen Inc. and Johnson & Johnson over the co-marketing agreement signed for erythropoietin. In the original lawsuit, the courts largely agreed with J&J's interpretation of the contract, but in another sense, J&J clearly lost: its reputation as a partner suffered for many years.

Pfizer Inc. was faced with a similar situation with Ligand Pharmaceuticals Inc. , which claimed Pfizer had violated...

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