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Analysts: Genentech, Roche Battle Not Over Yet

Wall Street continues to expect Roche's hostile tender offer for Genentech to fail, sending both companies to a negotiating table eventually.

NEW YORK (AP) -- Wall Street continues to expect Roche's hostile tender offer for Genentech Inc. to fail, sending both companies to a negotiating table eventually.

The comments follow South San Francisco, Calif.-based Genentech's annual investor conference, where it laid out its argument for turning down the Swiss drug developer's various buyout offers. Meanwhile, analysts mostly expect Roche's current $86.50-per-share tender offer to fail, with both companies eventually negotiating a deal, though not as high as the $112 per share Genentech has said it is worth.

"If Roche doesn't budge from its current level, we see little chance the tender is successful," Deutsche Bank-North America analyst Mark Schoenebaum said in a note to investors.

Roche's initial $89-per-share bid was rejected in July. It then surprised Genentech and Wall Street with the lower $86.50-per-share bid Jan. 30. The hostile tender offer is scheduled to expire March 12.

In a long regulatory filing last week, though, Genentech revealed that it believes it could fetch as much as $112 per share.

Roche owns 56 percent of Genentech but needs support from a majority of the other shareholders to complete any deal.

While several analysts said Genentech's update on its financial and product outlook helped shore up its argument for a higher value, the key to boosting the offer may be upcoming study data on Avastin.

The blockbuster cancer drug is approved for breast, lung and colon cancer. In the next several months, the company expects to report data from a study it hopes to use to gain expanded approval for colon cancer. Positive results, several have said, could jump-start the stock, though the opposite could hold true for negative results.

"In the end, the adjuvant colon data remains a watershed valuation event, and investors will need to decide if they can tolerate the short-intermediate term volatility that a negative outcome could create," Schoenebaum said.

But he added, the presentation Monday should provide some comfort about Genentech's long-term goals.

During that presentation, the company said it expects profit of $12.86 per share by 2018 on revenue of $26.9 billion, a marked increase from 2008's profit of $3.21 per share on revenue of $13.42 billion. It also said U.S. sales of Avastin, which reached $2.69 billion in 2008, could exceed $10 billion by 2015. The drug could possibly be approved for 15 indications by 2014, including prostate and ovarian cancer.

BMO Capital Markets analyst Jason Zhang said the company presented a compelling argument and even a strong argument for the company's value beyond Avastin's expansion in colon cancer.

Shares of Genentech rose $1.13 to $82.61 in midday trading.

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