Genentech issued its long-awaited response to the takeover bid from drug giant Roche, which already owns 56% of the biotech bellwether, and the answer is exactly what most Wall Street analysts expected: If Roche wants a friendly takeover, it better raise its offer.  Roche's (other-otc: RHHBY.PK - news - people ) $89-a-share bid for Genentech (nyse: DNA - news - people ) offered only a 9% premium to the price of the companys shares, far less than seen in Takedas recent takeover of Millennium Pharmaceuticals (nasdaq: MLNM - news - people ) or Bristol-Myers Squibb's Bristol-Myers Squibb (nyse: BMY - news - people ) proposed buyout of its partner ImClone Systems (nasdaq: IMCL - news - people ).  A three-member special committee assembled by Genentechs board of directors said the deal substantially undervalues the company. But the committee said it 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.  In a note to investors this morning, Deutsche Bank biotech analyst Mark Schoenebaum wrote that Genentechs response contains no major surprises, and he expects negotiations between the companies to begin shortly with a deal likely within a month or two. He noted Genentechs press release appears friendly but still said a deal is not assured.  Geoffrey Porges, an analyst at Sanford C. Bernstein, argued in a recent note to investors that Genentech could support a valuation as high as $130 thanks to the value of the companys research and the experimental drugs it is developing.  One big question mark is whether Avastin, Genentechs medicine for colon cancer, will work as longer-term therapy for that disease. Results of a trial studying the drug in that indication arent due until next year but they could come as early as November. That could catapult Genentechs stock to new highs.  Porges has also written that a Genentech buyout by Roche might kill one of the most successful drug research labs in the pharmaceutical industry. Although Genentech has been majority-owned by Roche, it has functioned almost entirely as an independent company, including in its relations with investors.  Genentech has a reputation as being more focused on science than most of its peers. Its chief executive, Arthur Levinson, rose through the ranks starting as a basic scientist. Twenty-five years ago he laid scientific groundwork for the breast cancer drug Herceptin, which is now a blockbuster. Herbert Boyer, the scientist who co-founded Genentech with a venture capitalist, is sitting on the boards special committee.  Would Genentechs scientists want to be part of a wholly owned Roche subsidiary? In its press release today, Genentech argues that they might flee. The special committee put into place measures to address employee concerns during this time of uncertainty.  To keep employees from leaving, Genentech will offer cash bonuses in lieu of stock options, enhanced cash severance payments, health benefits coverage and will make stock options vest more quickly under certain circumstances, a spokesman said. Further details on the employee retention plan will be included in a regulatory filing.
The biotech giant doesn't rule out a deal, and it takes special measures to keep employees from fleeing.