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Analysts: Roche Bid For Genentech Too Low

Roche's $43.7 billion bid to takeover Genentech may be too low, several analysts said, and investors seemed to agree, driving shares well above the value of the buyout offer.

NEW YORK (AP) -- The $43.7 billion bid by Swiss pharmaceutical giant Roche to takeover Genentech Inc. may be too low, several analysts said Monday, and investors seemed to agree and drove shares well above the value of the buyout offer.

Early Monday, Roche said it planned to buy the remaining shares of the South San Francisco-based biotech company for about $89 per share, or an 8.8 percent premium above its closing price Friday and 19 percent above the price a month ago. Roche already owns about 55.9 percent of Genentech.

It is likely, Roche said, that in order for the deal to work, a majority of non-Roche shareholders will have to vote for the buyout.

"We believe Roche is attempting to capture Genentech's significant future growth on the cheap," said Oppenheimer & Co. analyst Bret Holley, in a note to investors.

Investors pushed the value of Genentech's stock up $11.06, or 13.5 percent, to $92.87 in morning trading, after earlier touching as high as $94.19, a level not seen since January 2006.

Holley said a minimally acceptable offer would range from $102 to $110 per share, and expects a higher bid from Roche.

Genentech is one of the most lucrative cancer drug companies in the pharmaceutical industry. Its key drug Avastin, which is approved to treat breast, lung and colon cancer had sales of $650 million during the second-quarter and was the company's best-selling drug in 2007.

Its other drugs include Rituxan, which is sold in collaboration with Biogen Idec Inc. for the treatment of non-Hodgkin lymphoma and rheumatoid arthritis. It had sales of $651 million in the second quarter.

"We believe the Genentech independent directors may not accept the $89 offer because it does not seem to reflect the potential of Genentech's pipeline," said Goldman Sachs analyst May-Kin Ho, in a note to investors, he also expects a higher offer.

Meanwhile, Lehman Brothers analyst Dr. Jim Birchenough suggested Genentech is worth $120 per share, based on its position in the pharmaceutical industry and potential for its development programs. Those programs include continued development of Avastin for the colon cancer and breast cancer market. Also, Wall Street is waiting for study results on Rituxan as a possible lupus treatment.

"While Roche has expressed optimism in the outcome of these trials, we do not believe that the proposed purchase price truly reflects successful outcomes and would suggest that Roche will not want to take the chance of having to pay a higher premium if these trials report data prior to completion of negotiations," Birchenough said.

Robert W. Baird analyst Christopher Raymond and BMO Capital Markets analyst Jason Zhang also expect a higher offer from Roche, with both considering $89 per share as just an initial salvo in a negotiating process.

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