Takeover Isn’t a Bitter Pill to Biotech Industry : Biotechnology: Swiss acquisition of key company gains mostly favorable response from San Diego firms.
Local biotechnology executives reacted favorably Monday to Swiss-based Roche Holding’s $2.1-billion acquisition of a 60% interest in Genentech as the industry began to sort out the implications of the landmark deal announced Friday.
Having found themselves in similar financial straits at one point or other in their careers, most of the executives sympathized with Genentech’s decision to sacrifice its independence to accept nearly $500 million in badly needed capital from Roche to continue its product development.
Given the short-term focus of U.S. capital markets that increasingly turn their backs on biotechnology companies, it is not surprising that a foreign company is providing the capital to Genentech, the executives said. Several of the local executives said their companies have already sold sizable equity slices to foreign investors.
“We have all been talking about it for years--Wall Street’s focus on quarter-to-quarter progress makes it difficult to manage a company for long-term success,” said Andrew Barnes, executive vice president of Mycogen, a manufacturer of biopesticides. “We face the same problem as Genentech, though not on that scale: how to balance making investments for the future with how it will effect quarter-to-quarter performance.”
Last year, Mycogen decided it could best strike that balance by selling a 14% interest in the company to a Japanese company, Kubota Ltd., for $10 million. The price Kubota paid was a 15% premium over what Mycogen’s stock was selling for at the time of the investment, Barnes said.
Larry Respess, vice president and general counsel of Ligand Pharmaceuticals of San Diego said Monday that “the Japanese and the well-heeled Europeans are ready to step in” when U.S. biotechnology companies “come up against the wall.” A significant portion of the $9.6 million in venture capital that Ligand has raised to date has come from French and United Kingdom investors, Respess said.
All those contacted conceded that the Genentech deal has major implications for biotechnology in general because of the South San Francisco-based company’s status as a well-established biotechnology firm.
One outstanding feature is the price being paid by Roche, the parent of F. Hoffman-La Roche. In exchange for the nearly $500 million in cash, Roche will receive 22 million newly issued Genentech shares. In addition, Roche will buy half of the company’s outstanding shares for $36 each, a 65% premium over the stock’s closing price the day before the deal was announced. Until 1995, Roche has options of buying the rest of the company’s stock.
“The deal is very positive from the standpoint that it sets a very high value on the importance of the technology and products that are being developed by the industry as a whole,” said David Hale, chief executive at Gensia Pharmaceuticals of San Diego.
Howard (Ted) Greene, partner in Biovest, a venture capital firm that is lead investor in half a dozen San Diego biotechnology companies, said the deal fits an emerging pattern of giant pharmaceutical companies buying smaller technology-driven companies so as to keep the pipeline of new drug products flowing.
And Roche is “in the category of companies with enormous marketing presence worldwide but with some pipeline problems in technology,” Greene said. Roche, whose best-known products are Valium and Librium, is in need of new products, he said.
Many companies in San Diego, which is the nation’s fifth-largest biotechnology hub in terms of companies (72) sixth-largest in employees (3,500), looked to Genentech as an industry bellwether. The company’s patents are considered the strongest and most sweeping in the industry and it has introduced and marketed two highly successful products, an anti-clotting drug called Activase and a human growth hormone called Protropin.
But very few of the executives expressed any reservations about a foreign owner gaining control of what many decribed as the nation’s premier biotechnology company. Greene insisted that the United States is not in danger of losing its technological patrimony.
“I don’t see any difference in having corporate headquarters in Basel, Switzerland, or Indianapolis,” Greene said. “One thing that is very clear as we near the end of 20th Century is that the world is becoming global and that boundaries are becoming meaningless.”
Greene disputed the contention that the United States is losing a national resource by virtue of the Genentech buyout. “Keep in mind that Roche is buying assets that go out the door every evening. Genentech’s primary asset is its intellectual capital,” Greene said.
Hale took a somewhat more pessimistic view.
“Most people in the biotech industry felt that Genentech had a very significant opportunity to grow up and become an independent U.S. pharmaceutical company, the first one since (the founding of) Syntex” more than two decades ago, Hale said. “Now that opportunity is gone, and I don’t think that’s good.”
Stanley Crooke, chief executive of ISIS Pharmaceuticals in Carlsbad, conceded that the deal means “we are losing a piece of Americana” but said the deal, overall, is a positive one for the industry.
“It says that a company can begin and proceed along a course that’s well charted, and that at the end of it there are solutions that are positive,” Crooke said. “This will provide the stability (Genentech) needs to expand its pharmaceutical base without worrying day to day about the stock price.”
