By Debbie Strickland
Centocor Inc.'s move to acquire Retavase from Roche Holding Ltd. for $335 million in cash as a fibrinolytic complement to its percutaneous coronary intervention drug, ReoPro, generated a tepid response on Wall Street.
Centocor's shares (NASDAQ:CNTO) closed Friday down $2.06 to $37.625, a 5.2 percent drop.
Analyst David Crossen, who called the deal "a tremendous positive," attributed the dip to the cost of the acquisition, and Centocor's expected first-quarter charge of between $135 million and $145 million for a product that will likely boost earnings.
"Despite the charges and the cost, this [acquisition] is going to be additive to earnings going forward," said Crossen, who covers Centocor for Montgomery Securities, in San Francisco. "This is a very effective product."
Centocor's president and chief operating officer, Joseph Scodari, said in a prepared statement, "Centocor will now be positioned with products in the two most significant therapeutic alternatives for acute myocardial infarction patients."
In connection with the acquisition, Centocor and its ReoPro marketing partner, Eli Lilly and Co., of Indianapolis, reached an agreement in principle allowing Centocor's Retavase sales force to copromote ReoPro in the U.S. The two drugs are currently in clinical studies as combination therapy for acute myocardial infarction.
Centocor, of Malvern, Pa., expects the transaction to contribute to operating earnings in 2000, with a contribution to operating earnings before interest and taxes coming in 1999.
The Retavase deal is a "transforming transaction," which allows the company to "integrate forward into the commercial arena," said Centocor's CEO, David Holveck, in a statement.
Company officials declined to comment beyond their prepared words, citing Securities and Exchange Commission "quiet period" restrictions related to the financing for the acquisition.
ReoPro is a monoclonal antibody that combats blood clots by inhibiting platelet aggregation. The FDA-approved drug generated $254 million in sales last year and is undergoing Phase II studies with Retavase, a recombinant plasminogen activator, along with competing thrombolytics Activase and streptokinase.
Centocor won a label expansion for ReoPro in November, allowing the marketing of the drug for prevention of cardiac ischemic complications in a broad range of patients undergoing percutaneous coronary intervention. The product's original, December 1994, approval was for use in high-risk angioplasty patients.
As for Retavase, the drug was approved in October 1996 and launched in January 1997. It accounted for about 12 percent of the U.S. thrombolytic market in its first year on the market. Crossen expects sales to hit $85 million in 1998.
Roche, of Basel, Switzerland, is gaining Retavase from Boehringer Mannheim GmbH through an $11 billion buyout of the German pharmaceutical firm and its parent, Corange Ltd., of Hamilton, Bermuda. The merger was proposed in May 1997.
Centocor plans to finance the Retavase purchase by issuing $350 million in convertible subordinated debentures due 2005. The debentures will be convertible into common stock, at the option of the holder, at a price to be determined. The company may also issue up to $50 million in additional debentures to cover overallotments.
Centocor will record a one-time, pretax charge of between $135 million and $145 million in the first quarter of 1998, representing the acquisition of in-process research and development.
Centocor's U.S. sales and marketing team for Retavase will total about 200 and will use "many" of the existing personnel assigned to the product by Boehringer Mannheim, which developed the product. Centocor will seek a partner for the Canadian market.
Expected to close in the first quarter, the Retavase deal is subject to, among other things, U.S. Federal Trade Commission approval of the Roche acquisition of Corange.
Roche Has Stake In Lead Thrombolytic
The move prevents Roche from cornering the market on the only two FDA-approved plasminogen activators. Roche also has a buyout agreement for Genentech Inc., which was the first company to bring a plasminogen activator product — Activase — to the market. Roche owns about two-thirds of the South San Francisco company and has the right to buy Genentech subject to certain conditions.
The entry of Retavase, along with increasing use of mechanical reperfusion as an alternative to thrombolytics, weakened sales of Activase to $261 million, an 8 percent decline in 1997. The product's market share slipped from 80 percent in the fourth quarter of 1996 to 71 percent in 1997's fourth quarter.
Genentech spokesman Paul Laland emphasized "the fact that [Activase] has been on the market for more than 10 years, and it's been used in more than a million patients. Physicians are very comfortable using it. It's the standard reference drug in acute myocardial infarction."
As for the threat of Retavase, "It's impossible for us to predict what impact Retavase will have on [Activase]," he said. "It's too early for us to assess."
Genentech, however, is not taking the threat to its quarter-billion-dollar product lightly. The firm has ongoing patent litigation in the U.S. and Germany against Boehringer Mannheim. Centocor will now share responsibility and expenses, though details are not disclosed. If Genentech prevails, Centocor could receive liability reimbursement up to the full purchase price paid for Retavase.
Driven by a 70 percent surge in ReoPro sales, Centocor recorded its first full year of profitability in 1997, with earnings of $11.1 million on revenues of $200.8 million. *