Roche goes hostile, cuts Genentech bid to $42 billion

By Sam Cage

ZURICH (Reuters) - Swiss drugmaker Roche Holding Ag (ROG.VX) launched a surprise hostile bid for U.S. biotechnology giant Genentech Inc DNA.N at a price below its original rejected offer, reflecting tougher financing conditions and a drop in Genentech shares.

Roche is now making a public tender offer at $86.50 per share in cash for the 44 percent of Genentech it does not already own, valuing the deal at $42 billion and replacing its initial $44 billion bid.

The move comes just days after the world's biggest drugmaker, Pfizer Inc (PFE.N), agreed to buy smaller rival Wyeth WYE.N for $68 billion, backed by a $22.5 billion loan, indicating debt markets for cash-rich pharmaceutical makers are far from dead.

"We are confident that we will have the financing available when the money is needed," Roche Chairman Franz Humer told reporters.

Genentech said a special committee of its board would make a formal response within 10 business days of starting the tender offer and urged shareholders to take no action at this time. But it signaled another rejection in the offing.

"Notwithstanding current market conditions, the special committee continues to believe that $89 substantially undervalues the company," committee chairman Dr Charles Sanders said in a statement, using the initial offer price.

Buying Genentech would give Roche control of all revenue for blockbuster cancer drugs Avastin and Herceptin, as well as an attractive portfolio of other medicines, and reflects the pharmaceutical industry's push to acquire biotech assets to fill sparse new-product pipelines.

Genentech currently gets U.S. revenue from its medicines, while Roche sells the drugs outside the United States.

Roche appeared to be turning up the pressure on Genentech, which analysts said could be trying to delay the process until anxiously awaited clinical data on Avastin due in April becomes available. Positive data that could significantly expand Avastin use would likely drive up the company's value.

Roche's stock rose 1.9 percent to 163.40 Swiss francs. Genentech shares closed down 3.4 percent at $81.24.

Some Genentech shareholders have already indicated plans to reject the Roche offer.

"We are not going to tender our shares," said Sam Isaly, a portfolio manager for OrbiMed Advisors, which holds about 3 million Genentech shares.

While the Avastin data for use in colon cancer patients following surgery remains a question mark, Isaly said, "We're willing to take that risk and we think the shares are worth far more than the current share price."

Analysts and shareholders have said positive Avastin data could easily push Genentech shares well above $90.

"The majority of the minority shareholders are probably similar to us," said Sven Borho, another OrbiMed portfolio manager.