Cancer Drug Combination Halting Lung Cancer Progression (DNA, OSIP)
Genentech (NYSE: DNA) and Roche may still be in what is becoming a bitter merger, but it seems that Genentech’s Avastin continues to show promise in new cancer targets. The company released a study on Monday after the close along with OSI Pharmacuticals (NASDAQ: OSIP) showing that cancer drugs Avastin and Tarceva mixed together halted the progress of non-small cell lung cancer. This showed a significant improvement than taking Avastin alone.
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Genentech's No-Win Merger Situation (DNA)
Genentech (NYSE: DNA) was delivered the worst, or at least the second worst, bit of news it could have received. Late this week Roche delivered a crushing blow by lowering the offered acquisition price. This puts Genentech in a nearly untenable situation.
Roche already owns 55.8% of the Genentech outstanding shares and intends to commence a cash tender offer for all outstanding publicly-held shares to commence within approximately two weeks. Roche also intends to make the tender conditional upon a non-waivable condition that holders of at least a majority of the outstanding publicly-held Genentech shares tender their shares in the offer, that Roche can obtained sufficient financing, and other issues.
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Avastin's Next Target: Colon Cancer (DNA)
Genentech Inc. (NYSE: DNA) has released some new data in an SEC Filing showing that it is still on the path to getting colon cancer indications for treatments. The company said that it may find out the final results of the Avastin adjuvant colon cancer trial as soon as mid-April (2009). It received updated data to the timelines for the colon cancer trial from the National Surgical Adjuvant Breast and Bowel Project (also called the NSABP). It is hard to know the intricacies here since the timing and availability of data depends on the timing of disease progression events.
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Forget Earnings, Genentech Is Still All About Merger Status
We ran a full earnings preview for today’s earnings out of Genentech (NYSE: DNA) over at 24/7 Wall Wall St. Here you can see all the details and can compare today’s individual drug sales to the prior quarter for some inference. But we still feel that today is mostly going to boil down to whether or not that merger with Roche is deemed as on or off and whether or not the credit markets are posing an issue to the merger for the rest of the stake Roche doesn’t already own. Here was the full data we addressed recently covering the merger and the current credit environment.
Jon C. Ogg
October 14, 2008
Bear Market and Credit Risks For Genentech & Roche Merger?
The new bear market and lack of credit and capital globally may have yet a new victim: Genentech (NYSE: DNA). Even if the $89.00 per shares cash deal from Roche is not at risk, you would never know it by the reaction we have seen in Genentech’s stock. Shares are down 5% at $75.00 in early morning trading.
Genetech’s stock was trading at $80.00 just on Wednesday, and shares were north of $90.00 at the end of September. Here is why you have to wonder about the risks to the buyout above and beyond the recent trading action in the stock: This deal to acquire the minority stake at $89.00 per share in cash is a $43.7 billion sum of cash.
Roche shares also look like they are trading at fresh year lows in Switzerland. At the half-year report for June-2008, Roche listed its net cash at 10.115 billion Swiss Francs and its equity was listed as 49.176 billion Swiss Francs. 1 US Dollar today buys right at 1.12 Swiss Francs. The dollar has strengthened, so this merger is going to cost Roche more on a Swiss Franc currency conversion. Earlier this month, Citigroup’s analyst covering this sector said that the deal was now 8% more expensive due to the rise in the Dollar. While that means Roche would make more as Genentech’s revenues are in US Dollars, it still requires coughing up more cash upfront.
If you have been watching this global credit crisis unfold, you already know that banks do not want to lend to each other. They sure as hell don’t want to lend funds for mergers right now. IBM (NYSE: IBM) just paid 8% for a 30-year bond issuance (was a 3-part maturity totaling $4 billion). Recently General Electric (NYSE: GE) and Goldman Sachs (NYSE: GS) just had to pay rates which you could argue were running at 10% for financing from Warren Buffett.
To make matters worse, Genentech wants more money. Roche doesn’t want to pay more money. Shareholders want more money. And now there is a small issue that there just might not be enough money to go around to allow this to close.
Roche already holds the majority stake in Genentech. This global financial crisis might be creating a scenario where holding the majority stake will just have to be good enough.
Jon Ogg
October 10, 2008
Drug & BioHealth: How Worries May Hurt More Than News (MRK, PFE, BMY, TEVA, AMGN, BIIB, DNA)
It seems that the differences between old Big Pharma key drug powerhouses and established biotech players is becoming more and more of a blur rather than any firm lines. Before you consider this lunacy, remember the analogy that all biotech companies are seeking to become established drug companies. If you have watched Big Pharma mergers with biotechs, you’d wonder why there are any biotechs with drugs or pipelines left on the market.
Today we are seeing pressure on Merck & Co.(NYSE: MRK) after UBS issued some cautious stance on Gardisil sales. What is interesting about this call is that its primary competition on the U.S. drug market was just last week pushed out at least 6 months beyond what most were expecting.
It seems we almost never see a day without Pfizer Inc. (NYSE: PFE) not hitting a 52-week low or not at least being down on concerns that patents will expire and the company’s pipeline looks more like a pie in the sky line.
Bristol-Myers Squibb Co. (NYSE: BMY) has many of the same concerns as Pfizer as many of its investors have thrown in the towel here, but it has the added uncertainty of what this will look like beyond 2008 after the company goes through a miniature break-up.
If you think that generics coming on market is an issue, you may appreciate the irony as we see generics come under pressure from two arena. Big Pharma companies are taking the stance of slashing their prices to meet or come very close to generics as the generics get launched. This causes fears that generic margins will go to hell in a hand basket. Now take Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA). This one was hit hard recently after Mylan Labs (NYSE: MYL) signed a licensing pact in India to produce a generic version of Teva’s COPAXONE for MS treatment. Yep, that is the generic’s number one name brand drug it makes on its own. Go figure, a generic maker challenged by a generic.
But this doesn’t stop at Big Pharma and doesn’t stop at generics. Even many of the key biotech leader stocks have been under fire of late.
Amgen Inc. (NASDAQ: AMGN) has gone from its own cycle of boom to bust to rust. It ENBREL and other franchises have peaked for the time being over reimbursement rate concerns and Black Box warnings on its drugs with extreme warnings. While the worst is likely behind it and while we feel this is merely priced like a drug stock, there are very few traders looking for a major move in the near-term.
Biogen-Idec (NASDAQ: BIIB) is a worry that almost hasn’t gone away. Sure, the weakness after the post-TYSABRI withdrawal has been overcome, but this stock is believed to have very few prospective buyers based upon the size and target markets with today’s $17+ Billion market cap. We still believe the company mishandled its TYSABRI withdrawal because the treatment benefits looked so much better than the PML side effect percentages.
Take the giant Genentech (NYSE: DNA) for an example. The largest biotech is rapidly becoming a dead money stock. It keeps growing but concerns that its Avastin won’t continue to get perpetual approval to cure all cancers. Throw in the point that its individual drug sales seem to disappoint analysts routinely.
So where do we go from here? We are in an election year and it doesn’t take a rocket scientist to look at the health insurers and other medical-related sectors to determine that caution is going to prevail over extreme bullish sentiment of the past. We still think there will be many substantial mergers in small-cap and mid-cap biotechs and among many of the smaller providers that fit into safe niches. But there is going to be some added pain and caution as the most likely scenario(s) throughout the summer and into the fall in many of the key players in this field of drug and biotech.
At some point we’ll realize how cheap some of the names have gotten, but every effort to identify this as an inflection point has been met with added pain. Many of these companies will start reporting earnings over the next couple of weeks. You can bet that traders will be looking closely to start picking their spots or deciding to stay on the sidelines.
Jon Ogg
July 7, 2008
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