DealZone

Hard ball from Basel

February 10, 2009

schwanExpect a bruising fight.

In the battle for control of the world’s most valuable biotech company, Roche CEO Severin Schwan is playing hard ball. The reason is simple: he needs to clinch a deal that clearly enhances earnings.

The Swiss drugmaker has been the most highly rated Big Pharma company for years but financial results last week suggest it may be losing its mojo. Certainly, its premium rating is slipping.

Genentech had wanted $112 a share but Roche’s tender offer for the 44 percent of Genentech it doesn’t already own actually cuts the price to $86.50, or about $42 billion, from the $89 proposed last July.

The coming weeks promise plenty of argument about the true value of Genentech. In particular, the market and clinicians are awaiting results from a trial of blockbuster drug Avastin in colon cancer patients who have had their tumours removed through surgery.

Success would greatly expand Avastin sales, but the jury is out on how well Avastin will work in this setting. Roche sees a 55 percent chance of success; Genentech puts the odds at 61 percent.

More fundamentally, the battle risks breaking down into a culture clash between the suits from Basel and the men in lab coats from San Francisco.

Roche insists that fears for Genentech’s informal culture are unfounded.  Yet a growing number of talking-heads see the tussle in exactly those terms.  

“Billions of dollars are at stake, but at heart it’s not really about money. It’s as much a confrontation of cultures,” former Sunday Times editor Harold Evans  argues in a piece for BBC radio.

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