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Genentech's +20% Gain Is Just a Start with
Roche Deal Looming
Published:
October 6, 2008
Genentech (NYSE: DNA, $87.53) is a biotechnology
company that focuses on treatments for serious and debilitating
diseases such as cancer, rheumatoid arthritis and diseases of
the immune system. The company's major drugs include Rituxan,
which treats lymphoma and rheumatoid arthritis, and Avastin, a
treatment for some forms of lung and colon cancer.
Market Advisor's Paul Tracy profiled Genentech in
December. Paul liked the way the company was seeking new uses
for its existing drugs, and he saw a lot of promise in the
company's development pipeline. One blockbuster drug is a
game-changer for a biotech company that can mean tens of
billions in new revenue.
The Swiss pharmaceutical giant Roche, a leading maker of
cancer treatments, evidently agreed with Paul that Genentech was a good value. In July,
Roche, which already owns 56% of Genentech, offered $89 a share
for the rest of the company. That bid, about a +9% premium
at the time, added up to a $43.7 billion deal.
However, Genentech rejected the offer. A committee of board members
-- excluding Roche representatives -- met and issued a statement
saying the offer substantially undervalued Genentech. At
least one analyst, John McComant of the Medical Technology Stock
Letter, says he thinks DNA shares could fetch as much as $110 a
share. Other analysts, such as Eric Schmidt at Cowan & Co.,
agreed that a higher price was likely, and soon.
Though bankers and executives in the world's financial
capitals are concerned a tight credit market could severely
restrict expansion, Roche says it is confident it can raise
enough cash to make the deal happen, according to an article in
The Wall Street Journal on October 2nd, citing an unnamed Roche
spokesman.
When Paul first brought Genentech shares to the attention
of his
Market Advisor subscribers,
they were trading at
$72.78. They've since jumped more than +20%, to $87.53, which is still
below Roche's rejected offer for the company. Should a higher
offer indeed materialize, as industry-watchers have been
predicting, DNA shareholders will see an even healthier return.
Andy Obermueller,
StreetAuthority Staff Writer
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