The reaction from analysts to the bid by Roche to buy the 44.1% of Genentech that it does not already own suggests that the Swiss major will gets its way but may have to dig a little deeper into its coffers to secure the deal.
Roche is offering $89 per share in cash, or $43.7 billion, to buy the stake it does not already hold. That represents an 8.8% premium on Genentech’s closing price on Friday, and a one-month premium of 19%, but this opening gambit was met with derision by some brokers.
Michael King of Rodman & Renshaw issued a research note claiming that “the $89 opening bid is laughable, and, given the pre-market’s reaction in the stock, investors seem to agree”. The proposed deal was announced early this morning and Genentech shares ended the day up 14.7% at $93.88.
Mr King went on to claim that the premium offered to shareholders “is, in our opinion, completely inadequate and unacceptable”. He noted that, typically, takeover premiums in the biotechnology sector are between 30%-50% and based on the closing price last Friday of $81.82, “this would place a takeover value on Genentech shares of between $106-$123.”
Analysts at Robert W Baird said that the Basel-headquartered group, which gets 40% of its revenues from Genentech, “is likely to ultimately raise” its offer. 8.8% is “a significantly thin premium“ and any transaction must be approved by the 50.1% of non-Roche holders, they said.
Jason Zhang at BMO Capital Markets agreed that the price Roche has offered is too low. In a research note, he said that “although there is not a perfect formula for biotech acquisitions”, some recent deals “pushed the price-to-sales-multiple to 10”, ie AstraZeneca’s $15.6 billion acquisition of MedImmune. That would equate to a price of $118 per share for Genentech.
However he noted that as Roche already owns 55.9% of Genentech “and it is unlikely any other big pharma company would bid for it, Roche will not have to pay the highest price”. Mr Zhang believes that a price increase to around $100 “may get the deal through”.
Another reason why Roche may be able to avoid paying top dollar is an agreement drawn up in 1999 (when Genentech was floated) which states that if shareholders reject the bid, Roche can hire investment banks to set the price for the South San Francisco-based firm’s remaining shares. They could theoretically come up with a figure that is already lower than Roche’s offer.
As for the pursued company itself, Genentech just said that it had received Roche’s proposal and expects that a special committee of its board of non-Roche directors “will be convened promptly to determine what action to take with respect to the proposal”.
Mirus bought for $125 million
It is clear that Roche is in the acquisition mood, however, and this morning it announced that it is paying $125 million to take control of Mirus Bio Corp, a privately-held company in Wisconsin, USA, which specialises in RNA interference (RNAi), one of the most exciting new areas for drug research.
RNAi, a natural mechanism that the body uses to ‘silence’ certain genes, represents “a potential whole new class of therapeutics for difficult-to-treat diseases”, such as cancer, respiratory and metabolic disorders, Roche said, noting that it already has an RNAi licensing deal in place with Alnylam Pharmaceuticals. Lee Babiss, head of Roche Pharma Research, said the technology brought by Mirus, “together with additional technologies, will bring us closer to creating fully enabled RNAi therapeutics”.
It was noted that Roche will maintain a Mirus RNAi research site in Wisconsin and the latter firm’s transfection reagents business will be divested into a standalone business.
