SAN FRANCISCO (MarketWatch) – Shares of Tanox Inc. closed Friday with a nearly 45% gain after Genentech Inc. agreed to pay $919 million in cash to buy the developer of therapies based on monoclonal antibodies.
But the shares never touched the purchase price of $20 each, a 47% premium to Thursday’s regular-session closing price of Tanox
The stock closed at $19.75, pennies off an earlier high of $19.82.
South San Francisco, Calif.-based Genentech’s
shares, meanwhile, reversed course in late afternoon to finish the session higher by 24 cents, at $81.59.
Robert W. Baird analyst Christopher Raymond, who reiterated his outperform rating and $94 price target, wrote in a note that he was incrementally more positive on Genentech in the wake of this deal. “We … importantly note that the company generates enough operational cash flow to pay for this deal in less than a quarter.” Genentech announced that it plans to fund the acquisition with cash on hand at the time of the deal’s close.
Since 1996, the two companies have been working together in collaboration with Novartis AG to develop and commercialize Xolair, a treatment for moderate-to-severe allergic asthma. It was approved by the Food and Drug Administration in 2003.
Once the deal closes, which is expected to take place by the end of the first quarter of 2007, Genentech will stop paying Xolair royalties to Tanox; it also will begin receiving Tanox’s profit share and royalty payments from Novartis.
“In our discussions with the company, Genentech indicated part of the motivation behind the deal is to benefit from additional upside from a sizable market opportunity for Xolair in asthma and other respiratory diseases,” Citigroup analyst Elise Wang disclosed in a research note. Genentech said that it believes Xolair has only captured 15% of the asthma market to date and that Xolair is fairly early in its product lifecycle, according to Wang, and the company has plans to introduce new indications, formulations and next-generation products.
Genentech also will acquire Tanox’s product pipeline, which includes molecules being developed for the treatment of asthma, HIV and age-related macular degeneration.
Houston-based Tanox last week reported a third-quarter profit of $376,000, or a penny a share, on revenue of $15.3 million. In the same period last year, the company lost $3.38 million or 8 cents a share on revenue of $8.35 million. Net-royalty revenue from sales of Xolair was $10.2 million; it also recorded Xolair manufacturing-rights revenue of $2.6 million and related net profit-sharing revenue of $2.4 million.
Chief Financial Officer David Ebersman said on a conference call with analysts that it expects the deal to be neutral to its bottom line in 2007, adding 3 cents a share to earnings in 2008 and 4 cents a share in 2009, and “continuing to increase from there.”
The boards of both companies have approved the deal; it remains subject to approval of Tanox’s shareholders and other customary closing conditions. The companies said that they’ll be reviewing current operations and possible opportunities at Genentech for Tanox’s employees in the coming months.
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