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Roche Bid Could Alter Pharma's DNA

Updated from 10:30 a.m. EDT

Roche's $89-a-share offer for Genentech (DNA) is notable not just for the fact that it could mark the end of an era for the best biotech in the history of the industry, but for the repercussions it could potentially have on the rest of the sector.

First things first: Is the offer too low? The market seems to think so, with shares of Genentech trading up 14.7% to $93.88. I agree. I believe Roche has to up the bid.

On its conference call this morning, Roche sounded very firm with the offer, calling it "fair and generous" several times. Roche insisted that a takeout premium isn't justified in this case because the company already controls Genentech with its current 56% stake. In essence, Roche isn't acquiring Genentech as much as taking the company private.

The $89-a-share offer represents a 9% premium to Genentech stock's closing price Friday and a 19% one-month premium, but is it a fair offer when you factor in the multibillion-dollar commercial opportunity for Avastin in adjuvant colon cancer?

No way. UBS says a successful outcome for the Avastin adjuvant colon cancer trial could be worth $20 a share to Genentech's current stock price. (The next interim analysis from the study is due in the fourth quarter.)

JP Morgan biotech analyst Geoff Meacham, in an early-morning note to clients, agrees that the offer is low and that this may just be the start of the negotiating process, with a higher bid to come.

Lehman Brothers: Roche's offer is too low. The firm raised its Genentech price target to $105 a share Monday morning based on a reasonable counter proposal of $120 a share by Genentech's independent directors.
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