Genentech wanted $112 per share from Roche; SEC filing

By Nick Taylor

- Last updated on GMT

Related tags Roche Genentech U.s. securities and exchange commission

The strained relationship between Genentech and Roche has been revealed in a SEC filing, which details their differing valuations and accusations of misleading financial models.

In its filing to the US Securities and Exchange Commission (SEC) Roche gives a timeline of how it perceives events to have unfolded since May 2008 when it began readying to launch a bid.

Since the initial bid was made in July the companies and their financial representatives have met numerous times but failed to find common ground, with both having differing valuations of Genentech.

The filing shows that Roche asked Genentech to name its price and provide the materials used in its calculation on several occasions. The materials eventually arrived in the form of the November Financial Model but this was dismissed by the Swiss company as being made “in order to persuade Roche to increase the $89 per share proposal​”.

Roche’s disagreements with the model are extensive and include: “Assumptions regarding annual price increases, pipeline productivity, development costs, the value of the extension of the Roche Group’s “opt-in” rights relating to the Company’s products outside of the US, Avastin adjuvant indications, future revenues for Lucentis, Herceptin and Raptiva and potential tax benefits​.”

The month after Genentech presented the November Financial Model Genentech revealed its valuation to be $112 to $115 a share but said that it was willing to pursue a transaction at the lower figure.

With neither company regarding the others valuation as an appropriate point to begin negotiations a stalemate ensued, which Roche attempted to break by launching its hostile bid.

The latest offer is due to be withdrawn on March 12 2009 unless Roche opts to extend its offer. Genentech is expected to give a formal position to Roche’s hostile bid in the coming days.

Genentech to start contract manufacture?

The SEC filing reveals that Roche believes Genentech has “significant excess manufacturing capacity for biologics​”, which the biotech’s financial model earmarked for use in contract manufacturing.

Genentech believe this will remove the negative effect of the excess capacity, according to the SEC filing, but Roche doubts the plan.

Roche is concerned that contract manufacture is not part of Genentech’s business model or core competencies and it does not believe that the biotech has had any discussions with potential clients.

The companies differing opinions regarding the success of Genentech’s efforts to use excess capacity is another area that led to the differences in valuations.

In addition, Genentech and Roche disagreed over the amount of savings that could be generated by moving product manufacturing from the US to lower tax jurisdictions.

The complete filing can be found here​.

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