Genentech Expects OK to Buy Out R&D; Units
Genentech’s proposed buyout of its two research and development partnerships is expected to be approved today, despite a challenge by two investors.
The plan would cost the South San Francisco-based biotechnology company $432.5 million, based on Monday’s stock closing price of $86.50. The buyout generally has been favored by Wall Street, despite the deep slash it will make in fourth-quarter earnings, and the stock price has risen 8% since the buyout plan was announced on Oct. 27.
A company spokeswoman said that although the deadline for voting on the proposal was 11 a.m. today, results would not be released until Wednesday. She said the company was confident that the proposal would be approved.
Each of the partnerships has developed certain drugs through biotechnology, or genetic engineering, techniques. The buyout would eliminate royalty payments to the investment partners on sales of those drugs, turning the full profits--and risks--of the products over to the company and its shareholders.
Some of the investors, however, seem to think that the original deal, which gave them a share of sales, could be worth more, eventually, than Genentech’s current offer. Two investors in one of the ventures, Dean E. Kross and Joseph Benaron, have mounted a campaign to delay the buyout. Kross said late last week that he believed the vote would be “close.”
For each $50,000 partnership in Genentech Clinical Partners II, the company has proposed exchanging 2,500 shares of stock, worth more than $215,000 at current prices. Partners II has developed Activase, a form of tissue plasminogen activator, or TPA.
Analysts have said that Activase, now awaiting federal Food and Drug Administration approval, will become Genentech’s largest-selling product into the next decade. TPA is used as an unclotting agent in heart attack victims, and some analysts have predicted that TPA will be the first biotechnology product to generate $1 billion in sales.
Kross and Benaron contend that the investors lack a thorough understanding of the market potential of Activase. Benaron is a Beverly Hills resident; he and his family own five units of the Partners II venture. Kross, a Pittsburgh cardiologist who owns one $50,000-unit of the limited partnership, cited indications that Activase could be used in prevention-oriented treatment of high-risk heart patients--a use that could substantially increase the sales of the drug.
Genentech also proposed to trade 3,000 shares of stock for each $50,000-partnership-unit in Genentech Clinical Partners Ltd., an offer worth almost $260,000 at current prices. That partnership already is selling Protropin, Genentech’s form of human growth hormone. And it has developed a form of gamma interferon that is being tested as a cancer treatment.
