West Coast Editor
To keep pace with the roaring success of its compounds, Genentech Inc. is buying Biogen Idec Inc.'s 60-acre biologics manufacturing plant in Oceanside, Calif. - the one that had been slated to make ill-fated Tysabri - for $408 million, thus boosting Genentech's drug-making capacity by about 30 percent.
"Given the timing, we like this deal," Christopher Raymond, analyst with Robert W. Baird & Co. in Chicago, wrote in a research note. He maintained an "outperform" rating on South San Francisco-based Genentech, whose stock (NYSE:DNA) closed Friday at $82.47, up 82 cents. Piper Jaffray maintained the same rating.
Biogen Idec's shares (NASDAQ:BIIB) ended the day at $35.94, down 31 cents.
"Everybody's been asking [Genentech] about manufacturing capacity," Raymond told BioWorld Today, adding that the takeover of the Oceanside facility "should put to rest any speculation that Genentech was going to buy out Biogen Idec. They got what they wanted."
Of about 430 people who work at the plant, about 330 will be offered jobs at Genentech, which plans to add about 200 more employees by the end of next year. Others currently on staff at the plant will be retained by Biogen Idec, of Cambridge, Mass., which expects to incur charges of about $50 million to $57 million related to the sale, due to close June 23.
Genentech said details of the transaction, along with word about overall manufacturing plans, will be disclosed during or before its second-quarter earnings call, scheduled for July 11.
The Oceanside plant has 90,000 liters of bioreactor capacity. It's called NIMO, an acronym for "New Idec Manufacturing Operation," but Biogen Idec's plans for the multiple sclerosis drug Tysabri (natalizumab, formerly Antegren) went awry in February when the compound was pulled from the market due to a link to progressive multifocal leukoencephalopathy. The drug is partnered with Dublin, Ireland-based Elan Corp. plc. (See BioWorld Today, March 1, 2005.)
One company's misfortune became another's gain, as Genentech needs the extra capacity to keep churning out products in the wake of what Raymond called an "unprecedented string of positive data events" for the marketed drugs Avastin (bevacizumab) for colorectal cancer and Herceptin (trastuzumab) for breast cancer, as well as Lucentis (ranibizumab) for age-related macular degeneration, which recently yielded strong Phase III data. (See BioWorld Today, May 25, 2005.)
In early June, Raymond's firm was calculating the added manufacturing needs Genentech likely would have.
"Given that the [Vacaville, Calif., facility's] major expansion doesn't come online until 2009, we believe late-2006, 2007 and 2008 revenue will depend heavily" on the capacity issue, whether the added capacity comes from increased efficiency or an acquisition like the Biogen Idec buy, he wrote in a June research note.
Genentech expects to start making Avastin at the NIMO plant next year, with an FDA license expected by the first half of 2007.
"As I look at it, [by acquiring NIMO] they're OK in 2007 and beyond, but for 2006, I don't know," Raymond said. "Unless they're able to eke out some measurable degree from their existing capacity, in the worst case scenario, they may still need to access more capacity."
In a better-case scenario, he allowed, "they could deal with [potential shortfalls] with some fancy footwork in their existing facilities, by shifting things around."
That's already starting to happen. Genentech, he noted was "really hampered by the fact that they had a lot of mixed product at Vacaville," a problem that's being fixed. "They'll get Rituxan out of there so they can be more dedicated to Avastin."
Raymond said the company might well address the manufacturing issue for investors before the second-quarter earnings call.
"We got a general sense that there is a preoccupation with it, in the company," he said. "I think they'll have it figured out. They know what they're doing."