Roche Goes Hostile, Takes Lower Offer to Genentech Shareholders
BioWorld Today Assistant Managing Editor
With negotiations seemingly at a stand-still six months after Genentech Inc. rejected as too low a $44 billion buyout offer from majority holder Roche Holdings AG, the Swiss drugmaker clearly hopes to set the deal back in motion, but analysts say it's doubtful the biotech's minority shareholders will be amenable to a reduced bid.
Basel, Switzerland-based Roche said Friday it planned to proceed under a hostile takeover, taking its revised offer to purchase the remaining 44 percent of Genentech it does not already owned for $86.50 per share, down $2.50 from the $89 per share offered last year. A special committee of South San Francisco-based Genentech's board rejected that initial offer in August, stating that it undervalued the company. (See BioWorld Today, Aug. 14, 2008.) That same committee Friday urged shareholders to take no action at this time, and committee Chairman Charles A. Sanders called Roche's move a "unilateral and opportunistic step in an attempt to take advantage of current market conditions."
But market conditions might not have been the driving force behind Roche's offer. Analyst Christopher Raymond, of Robert W. Baird & Co., speculated that the timing might have more to do with the much-anticipated data from an ongoing Phase III trial of Avastin (bevacizumab) in adjuvant colon cancer, expected as early as April. If positive, several analysts have predicted that those results could drive Genentech's stock above $100. (See BioWorld Today, July 22, 2008.)
The 2,710-patient Phase III C-08 study is evaluating the effect of Avastin plus chemotherapy vs. chemotherapy alone in patients with early stage colon cancer, with overall survival as a secondary endpoint. Interim data presented at last year's American Society of Clinical Oncology meeting showed no unexpected safety events, and the trial was permitted to continue as planned.
The reduced bid might be a ploy "designed to get the wheels moving on consummating the deal before the all-important final Avastin adjuvant data are available," Raymond wrote in a research note. He called the colon cancer data the "wild card" of a potential merger agreement.
Given those pending data, Raymond said "it is far from a slam-dunk" that Roche will be able to get 80 percent of the minority shareholders on board. That's the minimum needed for the deal to go through, as spelled out under the companies' 1999 contract.
But Leerink Swann analyst Bill Tanner said it might be unwise for Genentech shareholders to try to hold out for a higher offer, calling the biotech's shares "fundamentally overvalued," and adding that Leerink's MEDACorp network of health care experts remain skeptical that the C-08 colon cancer trial will succeed. "If the trial fails, we believe a fair value for [Genentech] shares would be in the $60s," Tanner wrote in a research note, since he believes Avastin use "has peaked" in colorectal cancer, non-small-cell lung cancer and "growth has been slowing for metastatic breast cancer."
Roche said it anticipates initiating the tender offer in about two weeks. Its reduced offer would value the remaining share of Genentech at about $4.2 billion.
The $86.50 per share offer represents only a small premium - about 3 percent above Genentech's Thursday closing price - putting it well below the norm for other recent biotech and pharma deals. For instance, New York-based Pfizer Inc.'s recent $50.19 per share bid for fellow pharma giant Madison, N.J.-based Wyeth marked a nearly 30 percent premium to Wyeth's closing share price the day before the offer. (See BioWorld Today, Jan. 27, 2009.) Shares of Genentech (NYSE:DNA) fell $2.85 Friday to close at $81.24.
Roche's plan for combining the two firms remains unchanged from the strategy it unveiled in July. If the merger is completed, Genentech would operate as an independent research and early development unit within Roche, and Roche would integrate its virology research and development work, currently done at its Palo Alto, Calif., facility, into Genentech's South San Francisco location.
The firm's offer is conditional upon obtaining sufficient financing. It currently plans to finance the transaction through its own funds, in addition to commercial paper bonds and a traditional bank financing.
Genentech and Roche have a history that goes back nearly 20 years, starting in 1990, when Roche first acquired a majority interest in the biotech firm. In 1999, it bought the rest of Genentech, though it floated about 42 percent of the company's common stock through public offerings.
Published: February 2, 2009
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