IHS Global Insight Perspective | |
Significance | Roche and Genentech have reached a merger agreement under which the Swiss giant will acquire the outstanding public shares of the U.S. biotech for US$95 each in a cash transaction valued at US$46.8 billion. |
Implications | Roche is in the end paying a US$3.1-billion premium on its opening July 2008 offer. Through the deal, the Swiss company gains full access to a dynamic portfolio of marketed products and a promising pipeline of candidate treatments. |
Outlook | The transaction is expected to close rapidly after Genentech's Board of Directors recommended for their shareholders to tender their assets over to Roche. The transaction will positively contribute to Roche's future revenues but most importantly for the Swiss giant is the prospect of benefiting from the U.S. biotech's ability to innovate. |
Swiss Pharmaceutical company Roche has reached a friendly agreement with U.S. subsidiary Genentech to purchase the latter's outstanding public shares at the price of US$95 per share. The transaction will be in cash and is valued at US$46.8 billion. The special Committee of Genentech's Board of Directors has recommended that shareholders tender their shares to the Swiss company. At yesterday's close of business, Roche had already acquired 2.9 million shares. The offer runs until 25 March 2009. The offer is subject to Roche acquiring a majority of Genentech's outstanding public shares.
Under the terms of the agreement, Genentech is to retain its culture. Research and early development operations will be conducted from Genentech's South San Francisco (California, U.S.) campus. Roche's marketing operations presently in Nutley (New Jersey, U.S.) and virology research laboratories presently in Palo Alto (California) will be relocated to the San Francisco site. Roche's inflammatory research laboratories will be moved to Nutley. The companies do not anticipate scaling down their individual sales operations, which will operate under Genentech's banner.
The road to success has been bumpy for Roche, which initially announced its intention to fully acquire Genentech in July 2008 (see Switzerland: 21 July 2008: Roche Offers US$43.7 bil. to Take Full Control of Genentech; Operating Income Falls 7% in H1). The bid was rejected en masse by Genentech's shareholders as the biotech said that it expected an offer at over US$110 per share. The demands were followed by Roche initiating a hostile takeover at US$86.5 per share, whish also was met with resistance from the biotech's shareholders (see United States - Switzerland: 30 January 2009: Roche Initiates Hostile Takeover Bid for Genentech at US$86.5 per Share). Over the last week Roche raised its bid to US$93 per share and rumours ran high that a deal could be sealed at US$95 per share (see United States – Switzerland: 9 March 2009: Roche Raises Genentech Bid to US$93 per Share).
Genentech has seen its product sales steadily rise year-on-year. In 2008, the U.S. biotech posted product revenues of US$10.5 billion (see Table 1). Roche sells Genentech's products in ex-United States markets unless Genentech had other agreements in place. One such agreement is that signed with Novartis (Switzerland) over wet age-related macular degeneration treatment Lucentis (ranibizumab).
Table 1: Genentech's Product Sales, 2008 | ||
Product | Therapeutic Area | 2008 U.S. Sales (US$ mil.) |
Avastin | Oncology | 2,686 |
Rituxan | Oncology | 2,587 |
Herceptin | Oncology | 1,382 |
Lucentis | Ophthalmology | 875 |
Xolair | Respiratory | 517 |
Tarceva | Oncology | 457 |
Nutropin Products | Metabolism/Bones | 358 |
Thrombolytics | Cardiovascular | 275 |
Pulmozyme | Respiratory | 257 |
Raptiva | Dermatology | 108 |
Source: Genentech | ||
In addition to adding immediate product sales to its topline, through the deal, Roche will benefit from Genentech's renowned ability to innovate. The U.S. biotech's R&D operations have been highly successful and their outlook remains very strong. Genentech has a well stocked and diverse pipeline focused on oncology and immunology, which is expected to drive revenue growth in the short, medium and longer terms (see Table 2).
Table2: Genentech's Pipeline | |||
Status | Therapeutic Area | Product | Indication |
Filed | Oncology | Avastin | First-Line Metastatic Renal Cell Carcinoma Previously Treated Glioblastoma |
Filed | Immunology | Rituxan | Rheumatoid Arthritis DMARD-Inadequate Responders |
Filed | Immunology | Xolair | Paediatric Asthma |
Preparing Submission | Oncology | Avastin | First-Line Her2-Negative Metastatic Breast Cancer (RIBBON-1 and AVADO) |
Preparing Submission | Oncology | Rituxan | Previously Untreated Chronic Lymphocytic Leukaemia Relapsed Chronic Lymphocytic Leukaemia |
Preparing Submission | Oncology | Tarceva | First-Line Maintenance Therapy for Advanced Non-Small-Cell Lung Cancer |
Preparing Submission | Immunology | Rituxan | Rheumatoid Arthritis |
Phase III | Oncology | Avastin | Adjuvant Colon Cancer Adjuvant Her2-Negative Breast Cancer Adjuvant Her2-Positive Breast Cancer Adjuvant Non-Small-Cell Lung Cancer Diffuse Large B-Cell Lymphoma First-Line Advanced Gastric Cancer First-Line Her2-Negative Metastatic Breast Cancer First-Line Her2-Positive Metastatic Breast Cancer First-Line Metastatic Ovarian Cancer Gastrointestinal Stromal Tumours High-Risk Carcinoid Hormone Refractory Prostate Cancer Newly Diagnosed Glioblastoma Multiforme* Relapsed Platinum-Sensitive Ovarian Cancer Second-Line Her2-Negative Metastatic Breast Cancer |
Phase III | Oncology | Avastin +/- Tarceva | First-Line Metastatic Non-Squamous, Non-Small-Cell Lung Cancer |
Phase III | Oncology | Herceptin | Adjuvant Her2-Positive Breast Cancer (HERA 2-Year Treatment) |
Phase III | Oncology | Pertuzumab | First-Line Her2-Positive Metastatic Breast Cancer Platinum-Resistant Ovarian Cancer* |
Phase III | Oncology | Rituxan | Follicular Non-Hodgkin's Lymphoma |
Phase III | Oncology | Tarceva | Adjuvant Non-Small-Cell Lung Cancer |
Phase III | Oncology | Trastuzumab-DM1 | Second-Line Her2-Positive Metastatic Breast Cancer |
Phase III | Immunology | Ocrelizumab | Lupus Nephritis Rheumatoid Arthritis |
Phase III | Immunology | Rituxan | ANCA-Associated Vasculitis Lupus Nephritis |
Phase III | Immunology | Xolair | Asthma Liquid Formulation |
Phase III | Tissue Growth and Repair | Lucentis | Diabetic Macular Edema Retinal Vein Occlusion |
Phase III | Tissue Growth and Repair | TNKase | Central Venous Catheter Clearance Haemodialysis Catheter Clearance |
Phase II | Oncology | ABT-869 | Advanced Renal Cell Carcinoma Advanced or Metastatic Hepatocellular Carcinoma First-Line Metastatic Breast Cancer Second-Line Metastatic Colorectal Cancer Metastatic Non-Small-Cell Lung Cancer |
Phase II | Oncology | Apo2L/TRAIL | Indolent Relapsed Non-Hodgkin's Lymphoma First-Line Metastatic Non-Small-Cell Lung Cancer |
Phase II | Oncology | Apomab | Indolent Relapsed Non-Hodgkin's Lymphoma First-Line Metastatic Non-Small-Cell Lung Cancer |
Phase II | Oncology | Avastin | Extensive Small-Cell Lung Cancer Non-Squamous, Non-Small-Cell Lung Cancer With Previously Treated CNS Metastases Relapsed Multiple Myeloma |
Phase II | Oncology | Dacetuzumab (anti-CD40) | Relapsed Diffuse Large B-Cell Lymphoma Second-Line Diffuse Large B-Cell Lymphoma |
Phase II | Oncology | GA101 | Relapsed or Refractory Haematologic Malignancies Indolent Non-Hodgkin's Lymphoma |
Phase II | Oncology | Hedgehog Pathway inhibitor | Advanced Basal-Cell Carcinoma First-Line Metastatic Colorectal Cancer Ovarian Cancer Maintenance Therapy |
Phase II | Oncology | MetMab | Second- and Third-Line Metastatic Non-Small-Cell Lung Cancer* |
Phase II | Oncology | Pertuzumab | Second-Line Metastatic Non-Small-Cell Lung Cancer* |
Phase II | Oncology | Trastuzumab-DM1 | First-Line Her2-Positive Metastatic Breast Cancer Second-Line Her2-Positive Metastatic Breast Cancer Third-Line Her2-Positive Metastatic Breast Cancer |
Phase II | Immunology | Anti-IFNalpha | Systemic Lupus Erythematosus* |
Phase II | Immunology | Anti-IL13 | Asthma |
Phase II | Immunology | Ocrelizumab | Relapsing Remitting Multiple Sclerosis |
Phase II | Immunology | Xolair | Chronic Idiopathic Urticaria* |
Phase I | Oncology | ABT-263 | Chronic Lymphocytic Leukaemia Lymphoid Malignancies Small-Cell Lung Cancer |
Phase I | Oncology | Anti-NRP1 | Cancer |
Phase I | Oncology | Apo2L/TRAIL | Colorectal Cancer |
Phase I | Oncology | Apomab | Colorectal Cancer |
Phase I | Oncology | Dacetuzumab (anti-CD40) | Diffuse Large B-Cell Lymphoma Multiple Myeloma Non-Hodgkin's Lymphoma |
Phase I | Oncology | GA101 | Non-Hodgkin's Lymphoma |
Phase I | Oncology | IAP antagonist | Cancer |
Phase I | Oncology | MEK inhibitor | Cancer |
Phase I | Oncology | New molecular entity | Cancer |
Phase I | Oncology | New molecular entity | Cancer |
Phase I | Oncology | PI3 Kinase inhibitor | Cancer |
Phase I | Oncology | Trastuzumab-DM1 + Pertuzumab | Her2-Positive Metastatic Breast Cancer* |
Phase I | Immunology | Anti-Beta7 | Ulcerative Colitis |
Phase I | Immunology | Anti-CD4 | Rheumatoid Arthritis |
Phase I | Immunology | Anti-OX40L | Asthma |
Phase I | Immunology | New molecular entity | Autoimmune disease* |
Phase I | Tissue Growth and Repair | Anti-oxLDL | Secondary Prevention of Cardiovascular Events |
Phase I | Neuroscience | Anti-Abeta | Alzheimer's Disease |
Source: Genentech * Preparing to enter Phase | |||
Outlook and Implications
Following the positive recommendation from Genentech's Board of Directors, Roche is likely to be tendered the 90% of the biotech's outstanding public shares it needs to take full control of the company. Roche bagged itself a good deal as in the end the Swiss company paid a US$3.1-billion premium on its opening offer, which was likely to be at the lower end of what the Swiss giant was prepared to pay for the transaction. Roche is in a position to close the deal swiftly as the company raised over US$40 billion on the financial markets over the last few weeks. In addition, at the end of 2008, Roche had cash and cash equivalents of 16.7 billion Swiss francs (US$14.4 billion). The acquisition will have a positive impact on Roche's future financial performance and the Swiss giant is likely to positively alter its 2009 guidance as a result. Indeed, Roche expects to generate annual pre-tax synergy savings of US$750 to US$850 million as a result of the merger.
In the short-term Roche's top-line will benefit from the anticipated indication extension for multi blockbuster Avastin (bevacizumab) in brain cancer and first-line metastatic kidney cancer. Furthermore, the C-08 trial, which is designed to assess the effect of adding Avastin to FOLFOX6 (5-fluorouracil, leucovorin and oxaliplatin) chemotherapy on disease-free survival in patients with resected Stage II or III adenocarcinoma of the colon, has recently got a lot of press. The trial could be completed as early as April and if successful could add another string to the drug's bow.
From Genentech's perspective, the price tag is a long way off the US$112 per share the biotech was reported to be aiming for. Nevertheless, in the current financial markets the present offer could be at the top end of what the biotech could expect. Further bickering between the two companies could have soured their working relationship and could have lead Roche to walk out of the negotiations. Importantly for the U.S. biotech, it will retain its present culture, which has fostered innovation for over 30 years.