Aug. 7 (Bloomberg) -- Roche Holding AG may have to boost its bid for Genentech Inc. by almost 50 percent once test results show the cancer drug Avastin, sold by both companies, works against an expanding list of tumors.
Roche, of Basel, Switzerland, has offered $89 a share for the 44 percent of South San Francisco-based Genentech it doesn't already own. While a Genentech special committee evaluates the bid, Avastin is being tested against 30 different malignancies, including early-stage colon cancer, the second-leading cause of U.S. cancer death.
Avastin may become a first-choice drug against colon tumors if it's successful in studies to be released early next year. The drug's $3.4 billion in annual sales will grow by $2.2 billion should doctors begin using the treatment before colon tumors spread to other organs, said Michael G. King, an analyst at Rodman & Renshaw in New York. That may attract a higher bid and push Genentech's share price ``well north of $100 -- maybe $120 or $130,'' he said in a telephone interview.
``The clock is ticking for Roche to wrap this up before more Avastin trials confirm we should get an even higher premium for Genentech,'' said David Heupel, a Minneapolis-based manager with the $60 billion fund Thrivent for Lutherans. ``If you're going to take a quality company away from me, you better make it worth my while.''
The fund owned 376,250 Genentech shares as of June 30, according to data complied by Bloomberg.
Genentech's share price is above Roche's July 21 bid, showing investors expect a higher offer. The shares rose 35 cents to $96.40 at 9:48 a.m. in New York Stock Exchange composite trading. Roche fell 3.4 Swiss francs, or 1.8 percent, to 187.6 francs in Zurich.
Stealth Timing
Roche, already the world's biggest maker of cancer drugs, timed its offer to get Genentech at a bargain price before the new Avastin research, said Rodman & Renshaw's King.
Investors say the strategy may not work.
``I have a number in my head for what would be a fair price,'' said former Genentech chief operating officer Myrtle S. Potter, who held 3,087 shares when she last disclosed holdings in 2005. ``Suffice to say, there is general agreement out there that the Roche offer doesn't represent that number,'' she said in a telephone interview.
Roche won't say whether it will raise its bid, which spokeswoman Nina Devlin called ``fair and generous'' in a telephone interview.
Genentech formed a special committee of three board members to evaluate the Roche offer and hired New York-based Goldman, Sachs & Co. as financial adviser. Roche's adviser is Greenhill & Co., also of New York. Genentech's committee has no deadline for its response, said Geoffrey Teeter, a company spokesman, in a telephone interview.
$50,000 a Month
Avastin is the world's third-best selling cancer drug, after Rituxan and Herceptin, which Genentech and Roche also sell together. The medicine already is approved for patients with cancers that have spread beyond the breast, colon and lung. The treatment, which costs as much as $50,000 a month, works by starving a tumor's blood supply. The drug is Genentech's biggest product and is being tested in more than 400 clinical trials involving 40,000 patients worldwide, according to Roche and Genentech.
A U.S.-funded trial called C-08 is testing Avastin as a first-line treatment on people with colorectal cancer, a disease the National Cancer Institute says will kill as many as 50,000 Americans this year. Analysts expect the results in early 2009.
The usual treatment for colon cancer now is surgery to remove the tumor and six months of chemotherapy, followed by annual colonoscopies. People who are cancer-free after five years are declared cured. Those whose cancer reappears may get more chemotherapy along with Avastin.
Patients Would Double
If the new study leads to Avastin's approval in people with an early stage of the disease, ``that would double the number of patients being treated'' with the drug, said Carmen Allegra, the oncology chief at University of Florida in Gainsville and lead researcher on the C-08 trial, in a telephone interview.
The trial enrolled its last patients in September 2006 and follows test subjects through a year's treatment, he said.
``Based on the safety data, we haven't seen an increased risk of serious complications in patients who received Avastin with that first regimen of chemotherapy, which is a very encouraging sign,'' Allegra said.
Success in the colon cancer study also ``would make you more desirous to test it in other types of solid tumors,'' foreshadowing the drug's possible use as an early treatment for other forms of the disease, Allegra said.
What's Life Worth?
Even if Avastin succeeds in the C-08 study and becomes ``the standard of care'' for colon cancer, the treatment's cost could limit use, said J. Randolph Hecht, an oncologist at University of California at Los Angeles' cancer center.
``I don't think it is a slam-dunk,'' he said in an interview.
Genentech considers Avastin ``in the early to middle stage of development,'' said Robert Mass, the company's oncology chief, in a July 30 telephone interview. Success against colon tumors, he said, would mean ``the likelihood of it benefiting breast or lung cancer patients'' as an early-stage treatment ``increases substantially.''
It might also boost Genentech's price, said Rodman & Renshaw's King. He noted Roche's offer is 8.8 percent more than Genentech's share price the day before the bid was announced -- a premium far less than the 67 percent paid by Tokyo-based Takeda Pharmaceutical Co. in its May acquisition of Millennium Pharmaceuticals, a Cambridge, Massachusetts biotechnology company, according to Bloomberg data.
Other Acquisitions
Roche's premium also is below the 47 percent that London- based AstraZeneca Plc paid for MedImmune Inc., of Gaithersburg, Maryland, in June 2007, and the 25 percent that Basel, Switzerland-based Novartis AG paid in the 2006 purchase for Chiron Corp., another biotech company.
Roche faces further pressure to buy Genentech because its option to be first to license any Genentech drugs expires in 2015, said Jason Zhang, an analyst at BMO Capital Markets in New York, in a July 21 note to clients.
``The loss of that option could cost Roche tens of billions of potential revenue,'' Zhang said.
To contact the reporter on this story: Lisa Rapaport in New York at David Olmos in San Francisco at dolmos@bloomberg.net.
Last Updated: August 7, 2008 09:51 EDT
