Genentech's First Acquisition May Signal Biotech Wave
[It’s rather amazing that DNA has been in business for 30 years and the Tanox deal is its first-ever acquisition. Of course, part of the reason for this is that DNA itself was acquired by Roche in the 1990s and hence acquisitions that DNA might have considered had they been a standalone company became acquisitions by Roche instead. Moreover, any material transaction by DNA of course has to be cleared from Switzerland.
One tidbit from DNA’s Friday CC that hasn’t been widely reported in the press: DNA appears to have a genuine interest in TNOX’s TNX-234, which may have potential as a treatment for *dry* AMD.]
Nov. 10 (Bloomberg) -- Genentech Inc.'s agreement to buy Tanox Inc. for $919 million heralds 30-year-old Genentech's first acquisition and may signal more interest in purchases of biotechnology companies, analysts said.
Genentech, the world's second-largest biotechnology enterprise, agreed to pay $20 a share in cash for Tanox, the companies said yesterday in a statement after U.S. markets closed. That represents a premium of 47 percent above yesterday's closing price. Houston-based Tanox makes the injectable asthma drug Xolair, which Genentech co-markets with Novartis AG.
The acquisition would eliminate royalties that Genentech, based in South San Francisco, California, pays to Tanox for Xolair and provides access to biotechnology drugs in development for HIV, asthma and the leading cause of blindness in the elderly. With Genentech making a surprise purchase, more of the smaller biotechnology companies may draw interest from buyers.
“Genentech has typically grown its pipeline through in- licensing and not acquisition,” said Jason Kantor, an analyst at RBC Capital Markets in San Francisco, in a research note today. [Jason, they *always* did it that way, not just typically.] “This transaction may be a sign of a greater appetite for future acquisitions.” [Maybe.]
Shares of Genentech rose 24 cents to $81.59 at 4:01 p.m. in New York Stock Exchange composite trading. The stock had declined 13 percent in 12 months through yesterday. Roche Holding AG, based in Basel, Switzerland, owns 56 percent of Genentech.
Opportunities
``We've always been looking for the right opportunity, should it present itself,'' said Mary Stutts, a Genentech spokeswoman, in a telephone interview. ``We've set a pretty high bar for ourselves. This one met the bar.''
Tanox shares rose $6.11, or 45 percent, to $19.75 in Nasdaq Stock Market composite trading. They had dropped 13 percent in the 12 months before today.
Sales of Xolair were $374 million for the first nine months of this year, wrote Thomas Wei, an analyst at Piper Jaffray, in a research note today. Tanox receives a royalty on worldwide net sales, compensation for manufacturing rights and a share of the profit that Basel, Switzerland-based Novartis makes on U.S. sales. That money from Novartis would flow to Genentech after the buyout.
Tanox Treatments
Wei estimated the core Xolair franchise to be worth about $800 million, or $119 million less than Genentech is paying.[Actually, DNA is paying only $760M net of TNOX’s cash on hand and transaction costs related to the acquisition.]
Tanox specializes in treatments based on monoclonal antibodies, compounds produced by copying a single cell line that can be used to target substances provoking an immune response. Among the drugs the company has in development are treatments for HIV, the virus that causes AIDS, and for age-related macular degeneration, which can cause blindness.
The companies said they'll probably complete the transaction by the end of March and that they're reviewing operations for possible jobs at Genentech for Tanox employees.
The Genentech example shows that acquirers may be willing to pay higher premiums for biotechnology companies, said Geoffrey Porges, an analyst with Bernstein Research in New York, in a note to clients.
Eli Lilly & Co., the Indianapolis-based maker of psychiatric and diabetes drugs, agreed to buy Icos Corp. on Oct. 17 to gain full control of their jointly marketed Cialis, the second-biggest selling erectile dysfunction drug. Icos's purchase price of $32 a share, or $2.1 billion, was 18 percent higher than the stock's closing price the day before.
A firm representing owners of 5 percent of Icos's shares, HealthCor Management LP, opposes the takeover, maintaining ICOS shares are worth more than $40 each.
Cash, Advantages
Major pharmaceutical companies are awash in cash that they can use to fund such acquisitions, Porges said.
Amgen Inc., the world's biggest biotechnology company, bought Abgenix Inc. in April for $2.2 billion, gaining full control of the Vectibix colon-cancer treatment. Amgen won U.S. clearance in September for that drug, the company's first tumor- fighting medicine.
The buyouts are advantageous for both the bigger acquirers and the shareholders of the smaller biotechnology companies, and are ``going to happen over and over again,'' said Peter Young, president of Young & Partners, a New York investment bank specializing in life-sciences companies.
The larger pharmaceutical companies aren't inventing enough and need to supplement their development of new products.
``The time it takes to commercialize, test and get a drug approved has gone up dramatically,'' Young said in a telephone interview.
The smaller biotechnology companies are good at developing drugs, and don't always have the capability to sell their products effectively, he said.
``For a lot of these biotech companies, this is their way of getting liquidity for their shareholders,'' he said. <<
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