Genentech has launched an employee retention program aimed at retaining employees following the recent bid by Roche to acquire Genentech.

The Mercury News reported that Genentech’s plan is to spend $371 million in cash on retaining its personnel, which the company had planned to spend instead on its employees in a previously established stock option program.  The prevailing wisdom is that spending the money now on cash will be much more attractive than spending the money on stock options to be cashed out in the future.

Will this program help to discourage the departures of personnel who would otherwise choose to leave the company, in light of the uncertainty now about its future?

In all likelihood, the answer to this question is “no.”  Given the current state of the economy and the collapse of the housing market, the average Genentech employee will probably be concerned enough about his or her future to start looking for a new salaried position.  Also, many of Genentech’s employees are already well enough off as a result of the company’s successes over the years to not be swayed by a retention package.  Moreover, the conventional wisdom is that Roche will ultimately be successful in its bid to acquire Genentech, which means that many employee jobs may prove to be on the cutting block wiithin the very near future.

Still, you have to admire Genentech’s attempts to slow down the flow of departing employees out the  company doors.  I feel confident that most observers would agree that spending $371 million on retaining employees in the face of a likely acquisition is an impressive effort to ensure that the company can continue to operate, regardless of what happens with the acquisition effort.  And, of course, such an effort may have the other important effect of maintaining the company’s value as the acquisition talks move forward.  The California Biotech Blog will continue to watch this issue as it unfolds and will report on whether or not these efforts by Genentech prove to be successful.

A former City of Hope inventor has filed suit against his former employer to collect back royalties on technology that was the subject of a recent verdict for City of Hope against Genentech.

Robert Crea, the inventor at issue, filed suit in Los Angeles superior court in early August, following the resolution of the City of Hope’s dispute with Genentech.  The California Biotech Law Blog previously posted on this verdict, which was reached in April, 2008.

The Silicon Valley/ San Jose Business Journal reported on Crea’s suit against City of Hope as follows:

Crea worked in 1977 and 1978 as the lead synthetic chemist at the City of Hope DNA Chemistry Laboratory before moving on to Genentech, according to the lawsuit. . . .Crea is seeking approximately 5 percent of the royalties that went to City of Hope related to technology developed there, according to his attorney, Robert Yorio, a partner at Carr & Ferrell LLP, who is representing Crea. The Southern California medical center is collecting close to $5 million in damages and interest as a result of the suit.

“The City of Hope policy is a 15 percent (royalty) that is paid to inventors,” Yorio said. “And that 15 percentage would be shared. We are asking for his share.”

This case will be interesting to follow as it moves forward, given the fact that the suit seems to be based on the alleged failure by the City of Hope to fairly implement a royalty policy as opposed a breach of an existing written contract with the individual inventor.   I have not yet tracked down a copy of the complaint, but would be interested review the exact nature of the plaintiff’s allegations against City of Hope.

This case may very well serve as a warning for other institutions with similar royalty payment policies in place for their employees: perhaps such institutions need to take another look as to how these policies are dealt with upon an employee’s departure from the institution.  I doubt very many employers expect their former employees to sue them on such grounds after they have left the company for a new position elsewhere, but perhaps in today’s world where large verdicts on IP matters are commonplace,  they should be giving this issue further consideration.

The SBIR Reauthorization Insider has announced that the Small Business Administration ("SBA") is currently seeking comments on its plans to raise the SBIR award amounts from One Hundred Thousand ($100,000) in Phase One and Seven Hundred Fifty Thousand ($750,000) in Phase Two to One Hundred Fifty Thousand ($150,000) in Phase One and One Million Dollars ($1,000,000) in Phase Two.  The Federal Register states that comments must be received on or before September 15, 2008.

To submit a comment on this issue, the Federal Register instructs you to do the following:

You may submit comments, identified by RIN 3245-AF61 by any
of the following methods: (1) Federal Rulemaking Portal: http://
www.regulations.gov, follow the instructions for submitting comments;
(2) Mail: Office of Technology, 409 Third Street, SW., Washington, DC
20416; or (3) Hand Delivery/Courier: Edsel Brown, Assistant Director,
Office of Technology, 409 Third Street, SW., Washington, DC 20416.

Following up on our previous postings regarding California’s issuance of cease and desist letters to thirteen (13) genetic testing companies doing business in California, two DNA testing companies are now set to resume business in California, after having received new licenses to do business in the state.

According to The Mercury News, the California Department of Health has issued licenses to Navigenics of Redwood City and 23andMe of Mountain View, which will enable them to resume business operations.  Both companies had always argued that they were lawfully doing business in the state, and the fact that the state issued them both licenses seems to be a validation of their positions.

International Herald Tribune reported on the development as follows:

The companies had argued that they were not offering medical testing but rather personal genetic information services, and that consumers had a right to information from their own DNA. The companies also said they did not need a license because the actual testing of the DNA samples was being done by outside laboratories that did have licenses.

But the two companies do their own interpretation of the raw genetic data. Now, after reviewing the procedures used by the companies, the state is satisfied that the companies’ interpretation is based on the scientific literature. . . . the companies also satisfied the requirement for a doctor to be involved.

Navigenics already was paying a physician to review customer orders and now it appears that 23andMe might be doing something similar.

There is no word yet as to whether or not the other eleven (11) genetic testing companies, which also received cease and desist letters, will likewise receive licenses to resume operations in the state of California.  Today’s move should at the very least be viewed as encouraging by the similarly affected companies.  The action should also help to calm fears as to the state’s ulterior motives in attempting to regulate genetic testing companies.

Having said this, direct-to-consumer genetic testing has been virtually non-existent in the state of California for the past two months, and it is very likely that all of the genetic testing  companies have suffered at least some financial consequences as a result.  We have yet to see what the long-term impact of this incident will be on all of the affected businesses.

For now, however, concerned Californians can rest easy knowing that direct-to-consumer genetic testing will live to see another day in this state.

The Senate Committee on Small Business and Entrepreneurship ("SBE") recently passed a compromise Small Business Innovation Research ("SBIR") reauthorization bill that would allow small companies that are majority-owned by venture capital firms to be eligible for SBIR awards.

According to the SBIR Reauthorization Insider, the SBIR/STTR Reauthorization Act (S. 3362) is a  "completely new bill" that is "not related to H.R. 5819, the House’s SBIR/STTR Reauthorization Act passed in the House" back in April, 2008.  The complete draft of the bill is attached.

According to the SBIR Reauthorization Insider, some of the highlights of this bill are as follows:

1. Higher Award Amounts – The SBIR and STTR awards are increased to $150,000 in Phase One, $1 million in Phase Two, and are now able to exceed the guidelines by up to 50%.
2. Increase in the SBIR/STTR Cap– The SBIR cap will be increased from 2.5% to 3.5% at a rate of .1% over 10 years.  The one exception is the NIH, which will stay at 2.5%. The STTR cap will double from 0.3% to 0.6% over 6 years.
3. Venture Capital Eligibility-A "small business" that is majority owned and controlled by multiple VCs will be eligible to participate in the SBIR program under certain conditions. No single VC can own more than 49% of the small business entity; the VC must be a United States Venture Capital Company; the VC owned small business must register with the SBA when they submit an SBIR proposal. The NIH will be limited to awarding not more than 18% of their SBIR award funding to such VC owned small businesses, and the remaining 10 agencies are limited to 8%.
4. Length of Reauthorization – The new bill would be reauthorized for fourteen (14) years, resulting in new sunset dates of September 30, 2022, for SBIR and September 30, 2023, for STTR.
5. Crossover Between Agencies– The new bill would allow Phase One awards at one agency and Phase Two awards at another.
6. Crossover Between SBIR and STTR Programs-The new bill would allow Phase One awards through the SBIR and Phase Two awards through the STTR, or vice versa.
7. SBA Waivers Will Not Be Required–SBA waivers will not be required for partnering, subcontracting, or entering into a Cooperative Research and Development Agreement ("CRADA") with a  federal lab of a federally funded research and development center.
8. Reorganization of the SBA’s Office of Technology.  The bill will move the Office of Technology out from the contracts department and make the Office of Technology directly reportable to the SBA Administrator.  The aim is to restore some of the authority to this office, which was intentionally rendered ineffective in the past due to funding and staff cuts.

This bill obviously falls short of what the biotech industry was seeking in reauthorization legislation, as there is a cap on the percentage of awards that can be given to vc-backed businesses.  However, the industry should be pleased at the fact that a reauthorization bill is now likely to be passed, and some progress has been made toward opening  up awards to vc-backed businesses.  In all likelihood, the final legislation will no longer include a ban on awards to vc-backed companies, which is in itself a victory for the biotech industry.

Despite Genentech’s rejection of Roche’s $43.7 billion offer last week, coverage of the fallout from the "failed" bid continues as industry observers speculate on Roche’s next move. 

According to a report by the Silicon Valley Business Journal and San Francisco Business Times, Reuters has forecasted that the final purchase price of Genentech will be $53 billion or $107.50 per share.  According to The Pink Sheet Daily, such a high price could prove to be problematic for Roche, who may be forced to make operational cuts as a direct result of the deal.

Speculation is also growing as to whether or not Genentech is going to be able to keep its talent in anticipation of a potential acquisition by Roche.  SF Gate reported that, as anticipated by analysts, there already is a flurry of recruiter activity erupting at Genentech as a result of the initial Roche bid.  The Pink Sheet Daily noted that it will be difficult to retain Genentech’s current talent, as many of the senior-level people will have no financial incentive to stay.   Of course, it goes without saying that the general atmosphere of uncertainty and the anticipated change of culture will likely start driving employees out the doors of Genentech.  However, observers seem to agree that Roche has likely worked the loss of key Genentech employees into the equation in deciding to pursue a bid to acquire the company. 

The Genentech/Roche deal is viewed as just the first of  a new wave of big pharma acquisitions of biotech companies to come in the near future, as pharma companies continue to explore opportunities to replenish their pipelines.  Seeking Alpha explained as follows:

Big Pharma is feeling the need to find new products with blockbuster potential as several important drugs approach the expiration of their patent protection. . .  . Many large pharmaceuticals have lots of cash on their balance sheets, making acquisitions an affordable option. The weaker dollar has also made U.S. companies look more attractive to biotech and pharmaceutical firms abroad. Another major factor is the difficult process of receiving FDA approval. This lengthy and grueling process provides an additional incentive to buy companies that have already received FDA approval on their drugs, ensuring smooth pipeline production going forward.



Potential buyout targets to keep an eye on: Amylin Pharmaceuticals (AMLN), United Therapeutics (UTHR),  Alexion Pharmaceuticals (ALXN), Onyx Pharmaceuticals (ONXX), Vertex Pharmaceuticals (VRTX).

To date, there has been no word on Roche’s next move or when it is likely to take place.  How high will Roche go with the next offer?  The California Biotech Law Blog will keep you posted on any developments.

Following up on our July 24th posting about Roche’s bid to acquire Genentech, it is now official: Genentech has declined Roche’s $43.7 Billion Acquisition offer.

A Genentech press release explained the decision as follows:

The special committee of the Board of Directors of Genentech, Inc. announced that, after careful consideration, it has unanimously concluded that Roche’s proposal to acquire the shares of Genentech not owned by Roche for $89.00 per share substantially undervalues the company. Therefore, the special committee does not support the proposal. However, the special committee would consider a proposal that recognizes the value of the company and reflects the significant benefits that would accrue to Roche as a result of full ownership.

The Genentech press release further indicated that the special committee also approved the "implementation of a broad-based employee retention program to address any employee concerns created by the Roche proposal."

Will Roche increase its offer, now that its opening bid has been rejected? If so, what will it cost for Roche to close the deal? 

My expectation is that Roche will make another offer and that the next offer will be larger than the first.  However, it is an open question as to how much money Roche will have to pay to get the deal done.  According to Seeking Alpha, the final sale price is likely to be over $105 per share and could even be as high as $130 per share.   Either way, there is no question that Roche is going to have to come up with more money to get the deal done. 

The California Biotech Law Blog will continue to keep you posted as any new developments regarding the Roche-Genentech talks arise.

The buzz in the biotech world this week has been squarely focused on Roche’s surprising move to launch a $43.7 billion bid to acquire Genentech.

Of course, Roche already owns fifty-six percent (56%) of Genentech, so the acquisition would actually result in Roche owning the remaining forty-four percent (44%) of the company.  The offer would pay Eighty-Nine Dollars ($89.00) per share.

Steve Johnson for the Mercury News reported on the Roche bid as follows:

Although Genentech’s operations would remain in South San Francisco under the deal, it would cease to be a separate company, according to a Roche statement. The proposal will be reviewed by three Genentech board members who aren’t Roche employees, and must be approved by Genentech’s non-Roche shareholders.

If approved, the transaction would create the seventh-biggest drug-making entity in the United States in terms of stock value, according to Roche executives, who noted that Genentech now accounts for about 22 percent of Roche’s revenue.

By eliminating duplication, the combined companies could save up to $850 million a year, Roche executives said. The transaction also could eliminate current trade-secret roadblocks that now hinder their ability to share research data, they said.

According to the Mercury News, the deal is unlikely to close for the current offering price, and Roche may have to offer as much as One Hundred Dollars ($100.00) per share to finalize the deal.

As a member of the Bay Area biotech community, it is hard to envision South San Francisco without Genentech at the helm.   Many of the most successful players in the biotech world got their start at Genentech, and the company has had a very historic role in the growth of the biotech industry, both in the Bay Area and around the world.   That historic role, however, may soon be relegated to a new role in the history books–and we all may have to get used to a world without Genentech as we know it.

What will the entity formerly known as Genentech look like if Roche is successful with the acquisition?

Well, according to The In Vivo Blog, the acquired Genentech is likely to lose its culture, although it may or may not lose the majority of its talent–this will likely depend on whether CEO Art Levinson stays or goes.  For its part, The In Vivo Blog is prediciting that Levinson will make his departure, particularly given the manner in which this bid attempt was handled.  Certainly, there was no effort by Roche to preserve the collaborative spirit that had previously existed between the two companies.

Given this huge loss, will the Genentech acquisition really prove to be a good move for Roche?

Well, perhaps the acquisition will save Roche money.  This seems to be the overriding justification.

The In Vivo Blog reported as follows:

It’s likely Roche took a look at the price of its current Genentech relationship–with its manufacturing transfer prices, up-front fees and royalties, and most importantly no ability to leverage its investment in the US marketplace where the economics of oncology marketing look more and more like primary care–and figured those costs outweighed the innovation it would lose if Genentech’s world class talented departed as a result of a takeover. Just as no primary-care force can afford to sell a single product, Roche can’t afford a US oncology operation selling only Xeloda.

Moreover, Roche is clearly not convinced that Genentech’s productivity would have continued at the rates it has in the last decade. And there are plenty of people who agree. “We all know that Amgen is now a Big Pharma. We talked about it eight years ago. But I think Genentech has now sneaked over that line too,” says the CEO of one of Genentech’s peer Big Biotechs.

The East Bay Business Times agreed with this assessment:

The Basel-based drug maker said it expects to increase research productivity and cut costs by combining operations . . . .

“The transaction will also unlock synergies by leveraging the scale of the combined operations in the U.S. and improving operational efficiency,” said Roche chief executive Severin Schwan.

In the end, however, it seems likely that Roche will end up losing much of what is special about Genentech over the course of the transaction.  However, apparently this is a gamble that Roche is willing to take.

The California Biotech Blog will continue to follow the developments regarding this deal as they come to light.

The Baltimore Business Journal is reporting that life sciences companies spent a record amount on lobbying efforts in 2007–some 32 percent more in 2007 than in 2006.

The Baltimore Business Journal reported:

The industry unleashed a $168 million lobbying effort last year, the largest among all sectors and 90 percent of which was dominated by three biotech and pharmaceutical trade groups and 40 global companies. . . . Among top company spenders were British-based AstraZeneca PLC, which owns Gaithersburg-based MedImmune and tallied $4.1 million in lobbying efforts, and Israel-based Teva Pharmaceuticals, which owns Rockville-based CoGenesys and tallied $2.3 million. Amgen Inc., based in Thousand Oaks, Calif., topped the company list with a $16.3 million total contribution last year.

As the California Biotech Law Blog previously reported, BIO spent $6.6 million in lobbying efforts in 2007.

According to The Baltimore Business Journal, the industry’s investment seems to “have paid off.”

Was the investment really dollars well spent?  Well, clearly the industry has had some success with respect to delaying the passage of patent reform legislation, which was largely viewed as being more favorable to high tech companies than biotech companies.  Likewise, the lobbying efforts seem to have had some success in the SBIR area, as we previously reported in a recent blog posting.  So, the industry has definitely seen some success in Washington this past year, although that success has not been felt uniformly across the board.

There is no doubt that having a voice in Washington is taking on increasing importance for the life sciences industry, particularly in light of the lobbying efforts of the technology world.  It seems likely that the industry’s investment in lobbying will continue to grow in the near future, as the topic of health care reform continues to be a key political issue and the interests of technology and life sciences companies continue to diverge.  As I’ve suggested before, however, it is rather stunning to consider how much money that has to be invested these days in order to maintain a presence in Washington politics: $168 million is certainly not pocket change.

Wired.com is reporting that three DNA testing companies are pulling out of the California direct-to-consumer market, as a result of California’s recent action to send cease and desist letters to thirteen DNA genetics testing companies (See our recent  blog posting).

Alexis Madrigal for Wired.com reported yesterday that HairDx decided “on advice of legal counsel, to require California (and New York) residents to order their tests through a doctor.”  Then today, Madrigal reported that two additional genetics companies, Sciona and SeqWright, have decided to pull out of the California market.  According to Madrigal, SeqWright “ceased allowing tests from the state without even getting rapped by regulators.”

Will other DNA testing companies soon follow suit? It seems that the State of California’s actions may very well prove to have had a chiling effect over the whole DNA direct-to-consumer industry.  As Madrigal in his Wired.com column suggests, this may have very well been the intended result.

At least one company, however, may be prepared to take this fight to the next level.  Madrigal reported today that 23andMe seems to be standing its ground.  The company appears to be taking the position that it is in compliance with California law and is going to continue to sell in California at this time.  There is no word yet as to whether any other DNA testing companies are prepared to stand up to the state and challenge its regulatory actions.

It’s hard to see how these developments are good for the State of California.  One would have expected that a state as proactive as California with respect to promoting biotechnology and stem cell research would not have taken such a hard stance against direct-to-consumer DNA testing.  Will this incident ultimately prove to be the nail in the coffin for DNA testing services?  Certainly, California’s actions have the potential to initiate a wave of similar actions across the country, as other states may feel pressured to follow California’s lead.

The California Biotech Law Blog will continue to follow developments on this issue as they arise.