The battle for control of Genentech has stalled once again after the US biotechnology giant confirmed that it has rejected the hostile bid made by Roche.

A special committee of Genentech’s board has unanimously recommended that shareholders reject the $42 billion, $86.50 per share offer from Roche to acquire the 44% stake it does not already own. The committee noted that “after a thorough review with its independent financial and legal advisors”, the offer is inadequate “and not in the best interests of stockholders, other than Roche and its affiliates”.

Charles Sanders, chairman of the three-person committee, said that Genentech's exceptional management and team, including its world-renowned scientists, can create far more value for stockholders than Roche has offered”. The firm’s “track record of industry-leading financial results supports our confidence in its future," he added.

Dr Sanders went on to state that over the past seven months, the special committee “persistently attempted to work constructively with Roche and we were consistent in our stated willingness to negotiate toward a price that recognizes the full value of Genentech and reflects the significant benefits Roche would enjoy as a result of full ownership”. He then said that “even after all our efforts, and despite the acknowledgement of additional value as reflected in its advisors' analyses, Roche refused to increase its original $89 proposal and to engage in productive negotiations…regarding a mutually acceptable valuation”.

Instead, the Swiss major reduced its offer price. Dr Sanders concluded by saying “we are disappointed that Roche has chosen not to consider an appropriate price range for Genentech's minority shares or to constructively negotiate with our committee, and we must recommend that stockholders not tender their shares".

Revenues set to hit $28 billion in 2020
Genentech also submitted a document to the US Securities and Exchange Commission giving more details about why it believes Roche’s bid to be inadequate. For the period from 2006-2010, the company’s original goal was to move 20 molecules into development, and it is currently forecasting that figure to rise to over 35. Sales, which reached $13.4 billion in 2008, are forecast to hit $21 billion by 2015 and $28 billion by 2020.

However Roche is unlikely to be moved by Genentech’s claims that its “unparalleled” research and “robust” product line merit more cash. The Basel-headquartered group has consistently said that it will not be raising its offer and certainly nowhere near the “$100’s” per share proposed by a number of third parties.

It appears that Roche is in no great rush to hurry the deal along. Importantly, its offer is also scheduled to expire on March 12, but the results of a key trial of the blockbuster Avastin (bevacizumab) in an adjuvant setting for colorectal cancer are not expected to be announced before mid-April. This means stockholders would be required to make a decision to tender prior to announcement of the results which, if they prove positive, will make Genentech an even more valuable asset.

If the data from the Avastin colorectal cancer trial are negative, Roche could well choose to reduce the offer price even further. Surveys of Genentech shareholders not affiliated to Roche suggest that they are not be impressed by the $86.50 offer, so it is looking likely that not much will happen before the important Avastin data is published in April.

So a long way to go still? An interesting snippet in the lengthy SEC filing gives a clue as to the possible mindsets of the two sides. On July 22, Genentech chief executive Arthur Levinson met with Roche chairman Franz Humer in San Francisco to discuss the potential transaction. In response to a question from Dr Levinson regarding the probability of a deal, Dr Humer reportedly expressed “a strong desire and high level of confidence regarding Roche’s acquisition, but estimated it could take as long as 12 months”.

Most interesting of all, perhaps, is that Dr Humer then told Dr Levinson Roche could complete the transaction on a quicker timeframe, but that the longer it took to complete, the less expensive it would likely be to his firm.