Genentech rejects Roche Buyout, Shares keep climbing

The Pharmaceutical Industry is one that's complex and often difficult for Investors to understand. What with drugs, pipelines, trials, approvals, the FDA, and all the potential dangers, it is a business model built on spending massive amounts of money and taking even greater risks trying to develop medicine.

Drug development is one of the longest and most turbulent processes in capitalism and one doesn't have to look past a few pages in the paper, or a few web news articles these days, to see the problems and successes of drug makers first hand. The science behind medicine is fascinating but what makes this high stakes game of trial and error so lucrative is the fact that it is at its core, incredibly difficult.

So when the Amgen's (AMGN) or the Biogen's (BIIB) or the Genentech's (DNA) have something promising coming down the drug pipeline, doctors, patients and Investors take notice!

Genentech has one such success with Avastin, an FDA approved therapy that is designed to inhibit cancerous tumor growth by blocking the travel of nutrients through blood vessels to the tumor. Avastin is a big seller for Genentech and by accounts it will continue to be a blockbuster for the company. Sales of Avastin are already up to $1.3Billion in 2008, a sizable chunk of the $5.9Billion the company has done in total sales so far this year.

Roche Holdings (RHHBY) offer for Genentech of $89/share was eclipsed briskly in July by traders hoping Genentech would hold out for more. Shares were in the low 90s then and have continued climbing to stand at about $99/share today, the day Genentech officially rejected the buyout. Roche, based in Switzerland, already owns a majority stake in DNA (about 56%) but wants to own it outright, and for this it will have to put up plenty of cash.

The original offer of $43.7Billion for the remaining 44% of Genentech was sternly rejected as being too low, and Roche, it seems, would now have to pay north of triple digits per share to appease shareholders and management. At its current market cap, 44% of DNA works out to $45.7Billion.

To close the deal, I think Roche has to up their bid by as much as 10% from current levels, and that would give Genentech shareholders a lucrative reason to hold on to their shares. But this Investment, much like the Industry the companies find themselves in, is ever-changing and high-risk. For holders of DNA, the bottom's been set and rejected at $89/share, which should let you sleep a little easier, so continue to hold. Buyers beware as "buy high, sell higher" should work with this trade, but even so, the returns wont break open any portfolio.

Disclosure: Author holds no position in any of the mentioned companies

Weekend Market Notes 7/27

It's finally happened for Sirius (SIRI) and XM (XMSR)! The FCC has approved their merger to create a single unified Satellite Radio company. The two firms have to pay a $20Million fine for breaking their FCC promise of never merging, but that's small potatoes when you consider how much these two were paying for exclusive rights to various programming.

Those bidding wars can now end, cost cutting and synergy can begin. For Sirius, there will be share dilution but long term holders should stay positive on the company as this big hurdle has been finally climbed. For XM, holders should be looking at some short term gains as the price of Sirius determines the finaly buyout offer for its counterpart.

Amgen (AMGN) made headlines late friday after test results of an osteoporosis drug met its trial goals. The stock shot up 14% on the news after-hours. It'll be interesting to see if the company can extend its climb or will experience a profit-taking pullback as its earnings are also on tap.

In the Entertainment world, The Dark Knight keeps breaking records and playing to sold out showings in traditional cinemas and IMAX (IMAX) screens. After an estimated $75Million grossing weekend, Batman's haul stands at over $314Million domestically, putting it on tap to be a very profittable film for Time Warner (TWX). With a 10 day trek to reach $300Million some analysts are already eyeing the next $300Million, putting the film on pace to near Titanic's record domestic gross.

Disclosure: Author holds no position in the above mentioned companies

Earnings Preview: Week of Oct 22nd

To say the Markets took a breather Friday would be a grave understatement. The selling was balanced, on heavy volume and carried on throughout the day. The major indices; Dow Jones, Nasdaq, and S&P were all lower about 2.5%. Earnings season continues this week and more major companies will have the spotlight on them.

The week kicks off Monday with Computer and iPod/iPhone maker Apple Inc. (AAPL) reporting what is wildly expected to be another blowout earnings number for Technology stocks. Drug makers will also see action this week as Merck (MRK) and Schering-Plough (SGP) report Monday as well with Amgen (AMGN) and GlaxoSmithKline (GSK) set to follow later in the week.

AT&T (T) looks to capitalize on the popular iPhone as it highlights a busy Tuesday and software giant Microsoft (MSFT) headlines another busy earnings Thursday. Aerospace will feature also Lockheed Martin (LMT) reports as does Boeing (BA)

Investors and Traders will be looking for earnings to set a positive direction in order to drive further gains well into the Fall. Friday's pause was seen as healthy profit taking with a very cautious undertone. If the general earnings trend continues to be above-expectations than the market should have little resistance upwards, possibly no matter what the Fed does at its next Interest Rate decision.