Roche Holding AG (ROG) isn’t raising financing for an acquisition, Chief Executive Officer Severin Schwan said after a report that the Swiss drugmaker is preparing a bid for BioMarin Pharmaceutical Inc. (BMRN)
Schwan, in an interview today at Bloomberg’s New York offices, declined to comment on “rumors” regarding such a deal. BioMarin surged about 10 percent in early trading on the DealReporter report, then pared the gains after his comments. Roche hasn’t been in the market to seek money, Schwan said.
“We don’t have a need to raise capital,” he said. Roche had 3.6 billion francs ($3.9 billion) in cash and equivalents as of June 30, according to the Basel, Switzerland-based company’s first-half earnings report. “Investors ask us what we are going to do with all that cash.”
DealReporter said Roche is lining up $15 billion in debt financing for an acquisition of BioMarin, a maker of drugs to treat rare diseases. Roche may have to pay $95 to $105 a share for the Novato, California-based company, DealReporter said, citing people familiar with the situation.
“We don’t comment on rumors,” Debra Charlesworth, a spokeswoman for BioMarin, said in an e-mail.
The lower end of the range would be a 23 percent premium to BioMarin’s closing level yesterday of $77.49, and would value the company at about $13.5 billion.
“We are scratching our heads” at valuations in the biotechnology industry, Schwan said. The Nasdaq Biotechnology Index gained 54 percent this year through yesterday to a record. BioMarin increased 58 percent in that period.
“If there was a good strategic opportunity out there, I’d go after it,” Schwan said. Bidding wars for companies with products in later stages of testing don’t appeal to Roche, he said.
A takeover of BioMarin would give Roche a company that drew $500.7 million in 2012 revenue from medicines for diseases including mucopolysaccharidosis VI, or MPS VI, a rare, life-threatening lysosomal storage disorder. BioMarin also has a slate of experimental treatments for other rare diseases and cancer, and analysts expect its revenue to grow by at least 20 percent in 2014 and 2015.
BioMarin rose less than 1 percent to $78.39 at the close in New York. Roche, the world’s biggest maker of cancer drugs, climbed 0.8 percent to 239.60 Swiss francs in Zurich.
Roche’s stock has returned 34.7 percent this year including reinvested dividends, compared with a 21.3 percent return by the Swiss Market Index. It’s analysts’ favorite stock among U.S. and European big pharma companies, according to Bloomberg Industries.
In a wide-ranging interview, Schwan said Roche’s competitive position will only improve as scrutiny of value for money in medicine increases in the U.S. and Europe.
“You have to prove it,” Schwan said, predicting that drugmakers without great new science “will literally disappear. They will be bought up or go bankrupt.”
It makes sense to link price with clinical value of a drug, Schwan said. He praised the U.S. Food and Drug Administration for moving more quickly on innovative new drugs than regulators in Europe.
Roche will continue to seek “bolt-on” acquisitions that strengthen its core diagnostics and pharmaceutical businesses, Schwan said. Opportunity will drive deal sizes, the executive said, with more deals of less than $1 billion coming and from “time to time” a bigger acquisition in the range of its $3.4 billion purchase of Ventana Medical Systems Inc. in 2008.
Roche considered a bid for Alexion Pharmaceuticals Inc. (ALXN), another maker of medicines for rare diseases, people with knowledge of the matter said in July. Alexion engaged Goldman Sachs Group Inc. as an adviser to prepare for a possible bid from Roche, the people said at the time.
Companies like BioMarin and Alexion develop medicines for as few as 5,000 to 10,000 patients worldwide, and charge as much as $400,000 a year per patient.
A bid for BioMarin would contradict Roche’s history of “financially disciplined” acquisition negotiations, said Andrew Weiss, an analyst at Bank Vontobel AG in Zurich.
If the BioMarin report is true, “this would be a waste of money” at 40 percent more expensive than Alexion, as measured by enterprise value to sales, Weiss said. “Orphans are not a strategic imperative for Roche. They look for things that make sense and if something happens to be an orphan, so be it.”
Medicines for such small patient populations, known as orphan drugs, get exclusive marketing rights as an incentive for their development in the U.S. and Europe, while the small patient populations mean fewer participants are needed for clinical trials. They’ve drawn the interest of large pharmaceutical companies looking to fend off a drop in sales as patents on blockbuster drugs expire.