Genentech's Acquisition Of Tanox Does Not Represent A Strategic Shift, CEO Says
This article was originally published in The Pink Sheet Daily
Executive Summary
Genentech will continue to set a "high bar" for acquisitions after buying Xolair partner Tanox for $919 mil., firm says.
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Genentech's acquisition of its Xolair development partner Tanox does not represent a strategic shift for the world's first biotech company, CEO Arthur Levinson said Nov. 10 during a conference call announcing the $919 mil. acquisition. "There's been a fair amount of speculation that this represents a 'major strategic shift,' that maybe we should now be expected to announce a lot more of these things," Levinson said. "Let me just say at the outset here, that not only does this not represent a major strategic shift, I would say it doesn't represent a minor strategic shift." The news that Genentech would acquire Tanox garnered surprise, however, within the pharma industry, with the deal representing the biotech's first purchase in 30 years. "We have a very high bar for acquisitions," Levinson added. "We have believed and continue to believe that we have a very strong R&D pipeline, and sometimes acquisitions cause a lot of defocus....That doesn't mean that we'll never do one." The exec said that Genentech will continue to evaluate other acquisition candidates. "The vast vast majority of those will continue to fail to meet the high bar, but that doesn't mean that there can't be another one in three months or a year or in 30 more years," he said. Genentech said it found Tanox attractive largely due to the firms' 10-year partnership in asthma. Genentech and Tanox have worked together in collaboration with Novartis since 1996 to develop and commercialize Xolair (omalizumab). The anti-IgE monoclonal antibody was approved by FDA in 2003 for patients with moderate-to-severe allergic asthma. The deal will eliminate the royalty Genentech pays to Tanox and give the profit share and royalty payments that Novartis pays to Tanox to Genentech. Xolair has penetrated only a small portion of the asthma market; the drug generated $107 mil. in sales in third quarter 2006. Nonetheless, Genentech said there is significant opportunity for future growth for the brand, based upon an improved efficacy and safety profile and added convenience benefits. "We are focused on increasing Xolair uptake through increasing the number of patients treated, continuing our development program to enhance the efficacy and safety profile of Xolair, and three, expanding the label into new indications before finally developing a liquid formulation for improved convenience," Levinson stated. Xolair is currently administered through monthly or semi-monthly injections, which has presented a barrier to penetration, Genentech's VP-Sales & Marketing, Immunology Bill Anderson stated. "As patients and physicians are educated about the benefits of Xolair, there's an increased willingness to perform those injections. We've seen continued strong growth year on year...and we believe we can continue to see that," he added. Genentech has an extensive clinical program underway for Xolair, including trials in pediatric populations and patients with peanut allergies. Although the Phase II peanut allergy trial was halted at the beginning of the year following two reports of severe hypersensitivity reactions, Genentech said it is in discussions with FDA to determine a path forward for the indication (1 (Also see "Nuts! Genentech Halts Enrollment In Xolair Peanut Allergy Trial" - Pink Sheet, 17 Jan, 2006.)). With the purchase of Tanox, Genentech also gains access to the Houston, Texas-based company's monoclonal antibody pipeline. The R&D portfolio includes the anti CD4 monoclonal antibody TNX-355 for treatment of HIV, as well as potential treatments for asthma and age-related macular degeneration. Under terms of the deal, Genentech will pay $20 per Tanox share, representing a total value of roughly $919 mil. and a 46.7% premium over the closing price of the stock Nov. 9. The deal is expected to close in the first quarter of 2007. During a recent interview with "The Pink Sheet" DAILY, Genentech VP-Business Development Joseph McCracken characterized Genentech's thinking on deals as focused on the biotech's current areas of scientific expertise and increasing a given compound's probability of technical success (2 (Also see "Genentech VP-Business Development Joseph McCracken: An Interview With "The Pink Sheet" DAILY (Part 2 of 2)" - Pink Sheet, 20 Oct, 2006.)). -Jessica Merrill ([email protected]) |