Ventana Accepts $3.4 Billion

Roche finally nabs its man. Or in this case, its diagnostics company. All it took was an extra $14.50 per share. From the companies' press release:

This offer represents a premium of 4.9% to Ventana's closing price on January 18, 2008, a 19.3% premium to Roche's initial offer on June 27, 2007, and a 72.3% premium to Ventana's closing price on June 22, 2007 (the last trading day prior to the announcement of Roche's initial offer). The acquisition of Ventana, a leader in the fast-growing histopathology (tissue-based diagnostics) segment, will allow Roche to broaden its diagnostic offerings and complement its world leadership in both in-vitro diagnostic systems and oncology therapies.

Here's a recap: Roche spent most of 2007 getting turned down by Ventana, which played down the pharma's $3 billion offer multiple times. First they said please, then highlighted its belief in the importance of its diagnostics business by promoting its dx head Severin Schwann to CEO of the whole Roche Group. We suggested soon thereafter that Ventana should do the deal (this is why we are not CEOs, we suppose), and in late November they agreed to let Roche behind the curtain with an eye toward a more equitable arrangement (ka-ching!). Roche again extended its offer for the company earlier this month, and that brings us to this morning's $89.50 per-share-deal announcement.

We've outlined the rationale for this deal before (follow several of the links above). Roche clearly believes that personalized medicine is the future, and is sure that Ventana will help them get there. $3.4 billion sure.

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While You Were Watching the Upsets

This weekend we were in Cardiff for the Rugby World Cup quarterfinal between France and New Zealand, which saw France upsetting the favorites. Earlier in the day defending champs England upset heavily-favored Australia, setting up a very surprising all-Europe semifinal next weekend. Suckers for a lost cause, we managed to keep tabs on the Phils into the wee hours, and showed our support on the streets of Cardiff amongst the hordes of Kiwi and French fans (see below--it's a jungle out there).

So what'd we miss?

• The repercussions of the failure of Merck's HIV vaccine are being felt across the entire field, points out the Philadelphia Inquirer.
  
• Roche isn't raising its offer for Ventana, the company said this weekend, but it remains convinced Ventana shareholders will see the light.
  
• And the winner is ... Andrew Witty. GSK's head of Europe appointed CEO-designate, will replace JP Garnier in May 2008.

gotta support the team

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Take The Money and Run

On Tuesday August 21, this IN VIVO reporter had the opportunity to interview Christopher Gleeson, CEO of Ventana Medical Systems. It was an interview arranged by an outside public relations firm, ostensibly to talk about the growing importance of companion diagnostics. But there was a Swiss elephant in the room: Roche, whose $3 billion hostile offer for the diagnostic company was set to expire in a couple of days.

Gleeson confirmed his company has had no conversations with Roche since the end of June. "We would prefer not to comment on this matter," says Gleeson. But he maintains, "We continue to look at every way possible to maximize value to our shareholders." Forgive my confusion, but it seems like an odd time to seek out a meeting with a reporter and then dodge the most pressing issue facing the company.

Instead, Gleeson presented the broad case for molecular diagnostic content, invoking Genomic Health's success with Oncotype Dx, and his belief that valuable tests of this ilk can command premium price tags. Frankly, we at IN VIVO have been hearing this argument for a while now--with little formal movement.

Gleeson himself acknowledged that, to date, the relationships Ventana has developed with pharmas are primarily fee-for-service contracts for assay development using the drug company's own proprietary biomarkers. In other words, those pharmas haven't been willing to part with any kind of royalty in exchange for having a diagnostic co-listed on the drug label.

So why even bother speaking to IN VIVO at all? To convince me that a company with 2006 revenues of $260 million is worth more than Roche's $75-a-share offer?

Now, I know that the market for in vitro diagnostics is hot. A quick search through Windhover's Strategic Transactions Database shows 22 IVD acquisitions this year alone, and none of these take-outs have been cheap.

Remember Biosite? Beckman Coulter tried to buy the company for $1.44 billion, only to be out-bid by Inverness Medical. (See here for Windhover's coverage.) Especially in the over-heated molecular diagnostics arena, acquisition targets are commanding stunning multiples. Qiagen bought Digene, for instance, for $1.42 billion, a 9.3x multiple on the HPV-test maker's annual revenues.

But Roche's $3 billion offer for Ventana exceeds even that--assuming the Swiss drug maker doesn't sweeten its deal, it's nearly a 12x multiple on Ventana's 2006 sales. Said one industry insider who's been following the saga, "The price is scary."

I give Gleeson a lot of credit. He's playing a tricky game of brinkmanship. It's clear Roche wants this company badly--Ventana's cell-based assays fit with the company's professed long-term strategy to entwine drug development and personalized medicine. And the company spent 6 months pursuing Ventana privately before launching its hostile bid. When Roche finally went "hostile," it opted for a rich price, seemingly designed to frighten off competitors. As the summer wanes and the hostile bid gets extended yet again, it seems less and less likely that a white knight will appear to rescue Ventana.

Roche may decide to sweeten its offer in order to get the deal done, but that seems less likely after yesterday, when an Arizona court ruling granted a motion preventing Ventana from using a state anti-takeover position. (A ruling to prevent Ventana from issuing new shares to block the proposed deal--a so-called "poison-pill"--is still pending.) That's okay. Gleeson has done his job for shareholders: $3 billion is a rich price for a diagnostic company, especially one that isn't likely to be launching significant numbers of new companion diagnostic tests until 2011.

Seems like now is the time to take the money and run.

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Roche to Ventana: We want you so bad

It was apparent from today's Roche investor call that five months of trying to open acquisition discussions with Ventana Medical Systems has left the Swiss firm frustrated and desperate. It may well win the fair hand of Ventana with some combination of a carrot (we'd be so good together) and/or a stick (we're gonna get ya one way or the other), but by putting its cards on the table the way it has, Roche seems to have given Ventana all the leverage.

Several times, CFO Erich Hunziker acknowledged the strength of his firm's desire. "You may ask why Roche sees a certain urgency for this deal," he said early in the call. "Leaving Ventana's successful team unchanged and giving them the support of a global company could be very crucial at a time when key competitors in this market are still aligning their efforts after having just been taken over," he declared. "We are prepared for long discussions but a quick negotiated solution would have clear benefits for everybody involved." Roche has proposed in writing a Genentech-style buyout of a majority of Ventana's shares, as well as yesterday's announced hostile tender plan, which values Ventana at $3 billion, or 44% above Ventana's June 22 closing stock price. Under either scenario, it has promised to keep Ventana independent and in place ("We love you just the way you are..."). Thus far, however, Ventana is still screening Roche's calls.

With Ventana, a specialist in tissue-based oncology assays using both IHC and ISH (in situ hybridization) techniques, in the fold, Roche believes it would have a complete set of diagnostic technologies for the development of oncology drugs and companion diagnostics, including for therapy selection. And importantly, it would have the ability to begin the development process--for itself as well as for other companies that work with it on a service basis--early. "The earlier you start the exchange of ideas between pharma research and diagnostics, the better chance you have to come in parallel with the development of a companion diagnostic," Hunziker explained, adding that at this early stage of the research discussion, "not all of the IP is protected. I think you would shy away from opening up totally with a third party with whom you just have a partnership."

That's fine from Roche's point of view, but our guess is that Ventana does not necessarily share that perspective, and may prefer the potential clout such an interdependency could give it. It is, after all, already collaborating with Genentech (successfully, says Roche), Novartis, and ImClone.

Ventana also surely knows that, like Biosite and others with the rare commodity of molecular diagnostic content, it will command a sizable dowry tomorrow as well as today. Other potential acquirers, like GE, may indeed be wrapped up in merger integration at the moment. Or they may be on the phone with Ventana right now.

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Roche makes Ventana an offer it may or may not be able to refuse: $3 billion

As the market in the US closed today, Roche offered to buy the histopathology company Ventana Medical Systems for $75 per share, or about $3 billion to complement its in vitro diagnostics business. The bid is a 44% premium to Ventana's share price last Friday.

Lovely. The only problem? Ventana isn't playing ball. Which forced Roche to go public with the offer, and even disclose Roche chairman and CEO Franz Humer's "Dear Jack" letter to Ventana CEO Jack Schuler (see the link the the PR, above). Apparently Jack won't even take Franz's telephone calls; Ventana has been unwilling to engage in dialogue, etc. (No word on whether Ventana still sends Roche flowers or sings it love songs. We'll keep you posted.)

Meanwhile, there's a call for investors tomorrow--more to come.

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