Citigroup analyst Yaron Werber downgrades Genentech (DNA), arguing that Roche will not increase its bid as much as the market thinks.
Werber reasons that Genetech has lots of upside given the success of its Adjuvant cancer treatment. This being the case, Werber thinks that Roche will rush to get the deal done, especially since it will want to do its best to retain Genentech employees:
Due to the large potential upside for the adjuvant colorectal cancer trial, we believe the deal makes a lot of sense for Roche. We further believe Roche has an interest in concluding the deal soon given the need to retain employees and getting ahead of the data readouts in ’08 and ’09. We calculate that Genentech will pay for itself within 4-5 years given the company’s strong free cash flow generation.
That said, Werber thinks Roche will only raise its bid 20% above the original $89 bid, which, in his opinion, isn’t enough to justify buying the stock at this price ($98).
Yaron raise his price target price to $108 from $91.
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