Assistant Managing Editor

The acquisition everyone has expected since Roche Holdings AG first made an offer eight months ago finally looks to happen, as Genentech Inc. agreed to a takeover by its Swiss pharma partner in a deal valued at about $46.8 billion.

Termed a "friendly" agreement by both firms, the deal calls for Roche to pay $95 per share for the remaining 44 percent of Genentech it does not already own. That's $2 more than its previously upped hostile bid of $93 offered a week ago and represents a 3 percent premium to Wednesday's closing price of $92.17 - about a 14 percent premium to Genentech's closing stock price the day before Roche's original $89-per-share offer in July. (See BioWorld Today, July 22, 2008, and March 9, 2009.)

The premium is not as high as those seen in the recent mega-merger deals - Pfizer Inc.'s $68 billion offer for Wyeth (a nearly 30 percent premium) and Merck & Co. Inc.'s $41.1 billion bid for Schering-Plough Corp. (a 34 percent premium) - and is significantly less than the $112 per share Genentech demanded late last year. But given the steady slide in stock prices across the sector in the past several months, the $95-per-share offer "was pretty good," said analyst Bill Tanner, of Leerink Swann & Co.

"The entire world has changed since last July, when Roche offered $89 [per share], and it's changed since December when Genentech wanted $112 [per share]," he told BioWorld Today. Factoring in the market performance, a $112 stock price in December equates to about a mid-$80s price today, he added, so essentially, "Roche was willing to pay maybe $10 over that."

Charles Sanders, who chaired the special committee of Genentech's board, said in a press release that the latest bid by Roche was "a fair offer." The committee recommended that shareholders tender their shares. The tender offer is set to expire March 25.

Shares of Genentech (NYSE:DNA) gained $1.75 Thursday to close at $93.92.

But the real measure of the acquisition could come as early as April, when data in from the ongoing Phase III trial of Avastin (bevacimab) in adjuvant colon cancer. That study, designated C-08, is evaluating the effect of the anti-VEGF antibody in combination with chemotherapy vs. chemotherapy alone in 2,710 patients with early stage disease, with disease-free survival as the primary endpoint and overall survival as a secondary endpoint.

The adjuvant market for Avastin could reach $5 billion, and the C-08 study in colon cancer is expected to serve as a "bit of a predictor [for the drug] as an adjuvant in breast cancer and lung cancer," Tanner said.

So if Avastin yields promising data from that trial, Roche might come out having gotten a really good deal, but if the data are disappointing, "then Genentech may have gotten away with something," he said.

Already approved in first- and second-line colorectal cancer, first-line NSCLC and in metastatic breast cancer, Avastin brought in $2.7 billion of Genentech's total $9.5 billion in U.S. product sales in 2008.

Roche is responsible for overseas commercialization of Avastin, as well as Rituxan (rituximab), which also is partnered with Cambridge, Mass.-based Biogen Idec Inc., and has first rights to market any of Genentech's drugs outside of the U.S. The two firms have been linked since 1990, when Roche acquired a majority interest in the biotech. In 1999, it bought the rest of the company, though it floated about 42 percent of Genentech's common stock through public offerings.

In connection with the acquisition agreement, Roche will amend its existing tender offer and remove the financing and other conditions in the offer. Earlier this year, the Basel, Switzerland-based firm managed to pull in more than $30 billion in debt financing to help cover the cost of the deal.

And it's possible that money might help boost the industry. Analyst Michael Aberman, of Credit Suisse Securities LLC, wrote in a research note that he expects that "some of this cash will remain in the biotech sector, broadly speaking," with the U.S. large-cap companies likely to benefit the most.

If only half the cash from the Roche/Genentech deals stays in the U.S. large-cap biotech space, "it could lead to a fund flow tailwind of more than 15 percent" of the U.S. large-cap group, Aberman added.

Leerink's Tanner said it will be "interesting to see" how much money might flow back into the sector after cash is distributed to shareholders, but agreed that large-cap firms would be the beneficiaries. It's unlikely that money would filter down to the small and mid-cap biotechs, he said.

At the close of the deal, the company would be the seventh largest U.S. pharma firm and would employ about 17,500 people in the U.S. alone. Roche plans to integrate its virology research and development work, currently done at its Palo Alto, Calif., facility, into Genentech's South San Francisco location, which will become the headquarters of the combined company's U.S. operations.

While some in the industry have bemoaned the prospective loss of one of the biotech industry's top firms, Roche has pledged to let Genentech continue as a separate center. Roche Chairman Franz B. Humer told investors in July that the pharma firm would work to maintain the biotech's culture, which has generated some of the industry's top drugs, such as Avastin and breast cancer drug Herceptin (trastuzumab).

Roche CEO Severin Schwan said the firms now are "in an enviable position to expand on the success of our longstanding relationship."

Published  March 13, 2009