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Conflicting Reports Surface Over Roche Holding AG (RHHBF.PK)'s $10 Billion Deal, Chugai Pharmaceutical Co., Ltd. (Japan) Denies Talks

8/18/2014 5:54:39 AM

Conflicting Reports Surface Over Roche Holding AG's $10 Billion Deal, Chugai Pharmaceutical Co., Ltd. Denies Talks Conflicting Reports Surface Over Roche Holding AG's $10 Billion Deal, Chugai Pharmaceutical Co., Ltd. Denies Talks

August 18, 2014
By Mark Terry, Breaking News Staff

Rumors are swirling that Roche is intending to buy Japan’s Chugai Pharmaceutical Co Ltd. for $10 billion. The Japanese company flatly denied the rumor, which skeptical investors ignored, with shares rising 15.4% at the end of trade on Friday.

These rumors are not particularly new, and have cropped up occasionally since Roche made a similar buyout of U.S. biotech group Genentech in 2009. At that time Roche owned 66% of Genentech and purchased the remainder in a $47 billion deal. Currently Roche Holding AG owns 60% of Chugai shares. In 2002 Roche merged Chugai with its Japan subsidiary Nippon Roche in a deal worth about $1.4 billion. The combined companies focus on the development of oncology and arthritis medications.

Despite the rumors, analysts are doubtful. European brokerage Kepler Cheuvreux was quoted as saying the $10 billion deal would be too pricey and “would hardly be exciting from a strategic perspective. We would be surprised if Roche was launching a hostile bid without trying to approach the Chugai board and attempting to find an amenable price for all.” Current market price values Chugai at about $7 billion.

Analysts in support of the rumors cite Roche looking for more profits from Chugai’s drug pipeline, including Actemra®, a treatment for rheumatoid arthritis, and ACE910, for hemophilia.
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In July Roche made a bid to acquire Seragon Pharmaceuticals Inc. for about $1.7 billion. This acquisition would provide Roche with experimental treatments for breast cancer. The deal was announced as Genentech was acquiring Seragon. In that deal, Genentech/Roche made an upfront cash payment of $725 million, along with extra contingent payments of up to $1 billion based on developmental milestones.

Earlier this month, Roche acquired Danish firm Santaris Pharma for about $450 million. That deal involved an initial cash payment of $250 million with additional payments of as much as $200 million based on milestones. Santaris is a privately held company.

Roche, which has not commented on the Chugai rumors, has indicated recently that it is not interested in major acquisitions, but is interested in “bolt-ons,” which is when a company is acquired by a private equity firm to one of its platform companies. These are generally acquisitions that provide complementary services, technology, or geographic diversification that do not require making major changes in management infrastructure.

Chugai said in a statement that they were “in no way in the process of reviewing any plan to become a wholly-owned subsidiary of Roche, nor discussing with Roche about such a transaction.”

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