Roche to reduce offer for Genentech, go directly to shareholders

Basel, Switzerland

-Roche will reduce its original offer to purchase outstanding shares of Genentech from $89 per share, or $43.7 billion, to $86.50 per share, or $42.1 billion, and will go directly to shareholders for approval, the company has announced. Genentech has asked shareholders to take no action on Roche’s plans and said that a special committee will take a formal position within 10 business days of a tender offer.

Charles A. Sanders, MD, chairman of the special committee that Genentech’s board of directors formed in July to consider Roche’s initial offer, said, “The special committee is disappointed that Roche has taken this unilateral and opportunistic step in an attempt to take advantage of current market conditions. The special committee has been working diligently toward one goal: assuring full, fair value for all of Genentech's minority shareholders.”

Roche acquired a majority stake in Genentech in 1990 and owns 55.9% of all outstanding shares of the company. In July, Roche made an initial offer to merge with Genentech by purchasing the rest of the publicly held interest in Genentech. In August, Genentech’s special committee recommended that shareholders not accept the proposal because it “substantially undervalues the company.” At that time, Genentech officials said they remained open to the possibility of accepting another offer “that recognizes the value of the company and reflects the significant benefits that would accrue to Roche as a result of full ownership.”

Jan. 30, however, Roche announced its new plan “in light of the lack of progress towards an agreed transaction.”

“We are disappointed that the discussions over the last 6 months between Roche and the special committee of Genentech have not produced a negotiated agreement,” said Franz B. Humer, chairman of the Roche Group. “We feel it is now time to give the Genentech minority shareholders the opportunity to decide on our offer. Especially in the current market environment, the offer provides an opportunity for all public shareholders to achieve liquidity and to receive a fair price for all their shares.”

Among Genentech’s products are ranibizumab (Lucentis), which is FDA-approved for the treatment of wet age-related macular degeneration (AMD), and bevacizumab (Avastin), which is used off-label by some ophthalmologists to treat AMD. Roche co-develops and markets Genentech products outside North America.

If the two companies were to merge, Roche has indicated, Genentech’s research and early development activities would operate as an independent unit within Roche from its existing campus in South San Francisco, CA, and Roche’s pharmaceutical commercial operations in the United States would be moved from Nutley, NJ, to Genentech’s site in South San Francisco. Roche’s Palo Alto, CA, virology research and development activities would relocate to South San Francisco, and its Palo Alto inflammation group would become part of Roche’s Nutley research and development organization. Nutley would host two global disease biology areas (oncology and inflammation), as well as functions in metabolism, and would remain a pillar for the U.S. and Roche’s global organization.

The combined company’s U.S. commercial operations in pharmaceuticals would keep the Genentech name, according to Roche, to leverage the brand value of Genentech in the U.S. market.