Market jitters affecting takeovers?

As the world financial crisis deepens, the potential takeover deals involving Genentech and Roche, as well as ImClone Systems and Bristol-Myers Squibb, continue to play out. The current market situation could have an impact on the first takeover, although the second looks more likely to proceed smoothly.

For the first time since Roche made its bid to acquire Genentech in July for US$89.00 per share, the latter's shares have dropped below the offer price, ending on 29th September at US$85.30. The uncertainty now surrounding the bid has fuelled speculation that an improved offer may not be made. When Roche proposed the deal, the cost of borrowing was not as high as it in the current climate. Now there are concerns that Roche would have trouble financing the deal, which currently stands at US$43.7 billion, given the current credit market conditions. However, many analysts believe Roche's strong balance sheet and predictable cash flow will still allow it to secure funding for the deal.

The current situation could ultimately work in Roche's favour as the company may choose to draw out the process in order to extract the lowest possible price for Genentech's remaining shares. It may be that many Genentech shareholders would also prefer to wait, given that interim results are expected in November from a key clinical trial looking at the use of Avastin (bevacizumab) in colon cancer patients who have had tumours surgically removed; final results of the 2,700-patient study are due in 2009.

As for BMS' takeover offer for ImClone, which currently stands at US$62.00 per share in cash, Carl Icahn, ImClone's Chairman of the Board, recently commented that the "hostile tender of US$62, at this time, seems absurd". ImClone reportedly has an offer from another large pharmaceutical company of US$70.00 per share, also in cash, subject to due diligence, which was scheduled to be finished on 28th September. ImClone is expecting that a solid offer from this company will be made or a formal rejection, in which case the suitor will be identified, by the end of business on 1st October. Both of these offers, BMS' valued at US$4.7 billion and the other at US$6.1 billion, do not rely on either company raising funds so should not be affected by recent financial developments.

But to add to the uncertainty, Merck KGaA has entered the fray. Although the company has said that it will not bid for ImClone on its own, it has stated that it may consider taking part in a potential approach for the company. Could it join forces with rumoured suitors, such as Eli Lilly and Pfizer, which has coincidentally said recently that it will focus its early-stage research and development programmes on high growth areas, including cancer?

Matthew Dennis - Editor, Cancer Drug News