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Oct 15, 2007 (Vol. 27, No. 18)

Ventana Says Its Is Worth More Than $3B

Company Uses Companion Diagnostics as Bargaining Chip in Roche's Acquisition Attempts

  • The battle between Roche (www.roche.com) and Ventana Medical Systems (www.ventanamed.com) exemplifies the industry’s recognition of the value companion diagnostics add to a company’s business model. Ventana holds tools that Roche would like to leverage for itself and particularly its majority-owned subsidiary, Genentech (www.gene.com). Ventana has no doubt of the importance of its technologies and is using this fact to play hard to get.

    Roche has now extended its $3 billion offer to buy Ventana three times. Each prolongation of the expiry date has been met with a resounding and unanimous “no” from the Ventana board of directors and a negligible number of shares being tendered over.

    The $75-per-share price greatly undermines Ventana’s true value, according to the company’s president and CEO, Christopher Gleeson. Roche’s offer made on June 25 did represent a 42% premium over Ventana’s closing price on June 22. Since Roche made its take-over proposal, however, “Ventana’s CEO has been very vocal about the potential of the company, which has effectively raised its stock price beyond Roche’s bid,” points out Kevin Leong, research analyst, drug discovery technologies and clinical diagnostics, Frost & Sullivan. “This means that Roche either has to up its price or back out.”

    Since June 26, Ventana has traded above $75. The first day, the company’s shares skyrocketed to $77.36. On October 4, it peaked at $88.67, representing the highest value the company has enjoyed since it went public in 1996.

    Ventana believes that Roche’s proposal does not reflect its stand-alone worth within the tissue-based cancer diagnostics market or its growth potential in the field of personalized medicine. “Roche’s offer,” Gleeson remarks, “does not come close to adequately compensating Ventana stockholders for the accelerating momentum of our business, the near-term potential from our innovative platforms, the numerous catalysts that are poised to drive long-term value, our game-changing next-generation technologies, and the company’s growing menu of differentiated, high-value diagnostics that are expected to deliver on the promise of personalized medicine.

    “It’s about maximizing value to our shareholders, not about staying independent,” asserts Gleeson. Yet, Gleeson also stated that “Because $75 per share is so far below a reasonable starting point for negotiations, we also decline to engage in discussions regarding the sale of Ventana.”

    Indeed, no negotiations have taken place between the companies regarding a viable sale price since Roche made the hostile take-over bid. Steve Lipin, a Roche spokesperson, could only say that the company believes its offer to be full and fair but wasn’t able to talk about a potential increase in the offer.

    Besides Ventana’s potential, Gleeson also points to the company’s history of growth. “We have a strong, uninterrupted seven-year track record of robust year-over-year revenue and earnings growth and a very clear strategic plan to ensure continued successful commercial and financial performance and value creation.”

    Ventana’s third quarter financial results may indeed be the tipping point, Leong suggests. “If Ventana meets its target in Q3, it proves that the company is growing and does not need to be sold to achieve success. If they don’t, they lose investor confidence. Any bad news and their stock price will plummet.”

    A drop in Ventana’s value will certainly open the window for Roche to lure the company’s shareholders over to its side. Leong believes that Ventana’s stock price should remain stable until the current quarter’s financial data is made public. Roche’s offer, though, is set to expire at 5pm, EST, November 1, a couple of weeks before Q3 results are expected to be released. Hence, Roche will have to, once again, extend its offer.

    After three extensions, though, Roche had received 63,541 shares, a mere 0.187% of Ventana’s approximately 34 million outstanding shares. Leong says that Roche can afford to play the waiting game, especially since no other company has stepped up to the bidding plate.

    While Gleeson isn’t able to comment on his expectations for Q3, he continuously asserts his confidence in the company’s potential. Hence, if Ventana does sustain its growth, Roche will be forced to pull out unless it raises its price, notes Leong.



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