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Ryan McBride, Mass High Tech reporter
In their own words: Tod Woolf, CEO, RXi Pharmaceuticals Corp.
When Genentech Inc. speaks, life sciences executives from Kendall Square to Beijing tend to listen. Many of those executives were listening earlier this week when Genentech, the world’s second-largest public biotech company, confirmed that Swiss drug giant Roche Holding AG offered to acquire the 44.1 percent of Genentech it didn’t already own for nearly $44 billion. The news gave an immediate boost to biotech stocks across the country, notably large industry players Genzyme Corp. and Biogen Idec Inc., both based in Cambridge. And I couldn’t help but wonder how the pending Roche-Genentech deal would affect New England biotechs in the long run.
Should we expect many more consolidations among biotech and pharmaceutical companies in 2008? “Every year people always think that this is going to be a year of a wave of consolidation, and that doesn’t seem to be the case,” said Bill Tanner, senior biotech analyst for investment research and banking firm Leerink Swann LLC of Boston. “I don’t think this will mean that there’s going to be a huge wave of consolidations.”
If anything, Tanner said, Roche’s buyout of South San Francisco-based Genentech is yet another sign of pharma firms’ need to extend their drug pipelines as products come off patent and face competition from generics. At a deeper level, large-cap biotechs such as Genentech could be looking to be bought because of the more challenging reimbursement environment for high-priced biologics, the analyst noted.
Biogen, which has a 13-year-old partnership with Genentech, doesn’t expect its relationship with its industry counterpart to change if Roche buys Genentech, Biogen spokeswoman Naomi Aoki said. Biogen and Genentech jointly market non-Hodgkins lymphoma drug Rituxan in the United States, and Biogen received $616.8 million of $2.3 billion in net U.S. sales of the drug in 2007, according to Biogen.
Biogen also receives double-digit royalties on sales of the drug outside the United States, except in Japan, Aoki said. Roche handles non-U.S. sales of the drug.
Biogen, of course, was unsuccessful in its attempt to sell itself last year at the urging of billionaire investor Carl Icahn. The company, however, remains a candidate for a takeover, said Tanner, in part because of its strong position in the growing market for multiple sclerosis drugs. Indeed, Biogen this week reported that second-quarter revenue was up 28 percent, to $993 million, in large part due to the jump in sales of MS drugs Avonex and Tysabri.
In Tanner’s view, Genzyme is less likely than Biogen to attract a Big Pharma buyer because its treatments for rare diseases serve niche markets with lower potential for growth. Apart from Tanner’s take, Genzyme has one of the biggest biotech businesses in the world, with products such as Cerazyme and Fabrazyme that contributed to $3.8 billion in sales for 2007. Through just the first quarter, the large biotech was on pace to surpass $4 billion in sales this year.
Still, it’s worth mentioning that the potential Roche-Genentech deal has a unique variable. Roche already owns a 55.9 stake in Genentech, putting it in a much better position to mount a buyout than a pharma without majority ownership of a takeover target. (The New York Times reported this week that Roche purchased a majority stake of Genentech way back in 1990 for $2.1 billion.)
Tanner predicts the ultimate buyout price for Genentech would value the company at $120 billion. In my book, that mind-blowing figure demands attention among life sciences executives in New England and everywhere else.
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