Roche attempts hostile takeover

March 1, 2009

Analysts and ophthalmologists are closely watching the drama unfolding between private Swiss drugmaker Roche and the publicly traded, California-based Genentech, maker of ranibizumab (Lucentis), the only FDA-approved treatment for age-related macular degeneration (AMD), and its popular cousin, bevacizumab (Avastin). Roche is attempting a hostile takeover of Genentech.

Key Points

Analysts and ophthalmologists are watching closely the drama unfolding between private Swiss drugmaker Roche and the publicly traded, California-based Genentech-manufacturer of bevacizumab (Avastin) and ranibizumab (Lucentis).

Roche is attempting a hostile takeover of Genentech and has offered shareholders $86.50 for each share of Genentech stock they own, for a total purchase price of $42.1 billion. The tender offer is down from the $89-per-share offer Roche made in July to Genentech's board, which in August declined what would have been a $43.7 billion deal (Ophthalmology Times, Aug. 15, 2008, Page 6 and Sept. 15, 2008, Page 8).

A Feb. 9 filing by Roche with the Securities and Exchange Commission (SEC) shows the Genentech board agreed in December to consider a sale to Roche at $112 per share for the 44.2% of the shares Roche does not already own.

Shareholders have until March 12 to decide whether to sell to Roche. Genentech's independent directors are asking shareholders to hold off on any sale before the board releases its formal response to the latest Roche offer; that response was expected within 10 business days of the Feb. 9 offer.

Analysts weigh in

With such a disparity in the two share figures, analyst Larry Haimovitch of Haimovitch Medical Technology Consultants, Mill Valley, CA, told Ophthalmology Times that he does not expect Roche to be successful in this takeover attempt. If he owned Genentech stock, Haimovitch said, he would not sell at this point.

"It's completely unpredictable," he said. "I suppose a compromise could be made, but, interestingly, each side has put a stake in the ground, Roche at $86.50 and [the] board has said $112. That's a long way apart."

Likewise, JP Morgan analyst Geoff Beacham said in a Feb. 10 conference call with investors that Roche's offer is undervalued. "At the end of the day, we don't think there's a reason to tender," he said.

Majority owner

Roche has held a majority ownership in Genentech since 1990 and has been its "most significant strategic partner" on many of its key products, Roche said in the Feb. 9 filing.

Roche shares an interest in bevacizumab, an oncology drug that many ophthalmologists use off-label to treat wet AMD rather than the FDA-approved ranibizumab because bevacizumab costs hundreds of dollars less per dose while having a similar effect on vision. Although Genentech developed both drugs and markets bevacizumab within the United States, Roche sells and distributes bevacizumab and other Genentech products outside of North America.

At the annual Hawaiian Eye meeting in January, some 59% of physicians attending a session hosted by Carmen Puliafito, MD, dean of the Keck School of Medicine at the University of Southern California, Los Angeles, indicated that their preferred anti-vascular endothelial growth factor (VEGF) drug is bevacizumab, said Haimovitch, who attended the meeting. Meanwhile, 38% said that they preferred ranibizumab. Thirty-five percent of the physicians indicated they were using bevacizumab exclusively, whereas only 15% said they used ranibizumab exclusively, he said.

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