ZURICH Swiss drugmaker Roche said it would have to rethink its tactics if shareholders of reluctant U.S. bid target Illumina did not back its approach as it reported strong first-quarter pharmaceutical sales helped by top cancer drugs.
Genetics specialist Illumina has rejected Roche's $6.8 billion sweetened takeover offer and urged investors to vote against Roche's bid to get its own nominees on to the U.S. firm's board at a meeting on April 18 to push for talks.
Chief Executive Severin Schwan told journalists on Thursday that Roche would have to consider "all its options" if Illumina shareholders voted against its proposals at that meeting.
Roche's efforts to get its slate of directors elected to Illumina's board look to be a long shot after three proxy advisory firms have recommended that shareholders back Illumina's nominees.
"If Illumina were to engage with us, we would consider any information supporting Illumina`s contention that our offer undervalues the company and its prospects," Schwan said in a statement, adding that publicly available information did not justify a price above $51 per share.
His comments echo those made in a letter to Illumina shareholders late on Wednesday in which Schwan also ridiculed Illumina's claim to be "the Apple of the genomics business".
Roche said its $51-per-share offer for Illumina - raised from an initial $44.50 - should be "more than enough" to begin negotiations with the maker of genetic analysis equipment that can help better identify which patients benefit from drugs.
Illumina's shares fell 3.5 percent to $50.75, as speculation faded of Roche hiking its offer again by much.
But Bernstein analyst Timothy Anderson said Schwan's comments still suggested Roche was willing to raise its bid, "perhaps through some sort of flexible bid, similar to Sanofi's acquisition of Genzyme?"
Sanofi's 2011 deal to buy Genzyme included contingent value rights (CVRs) or milestone fees tied to the company meeting certain obligations and the future performance of some of its drugs.
Roche, the world's largest maker of cancer drugs, said its first-quarter sales fell 1 percent to 11.03 billion Swiss francs ($12.05 billion), but rose 2 percent at constant exchange rates, meeting the average analyst forecast in a Reuters poll.
Sales at the dominant pharmaceuticals division beat forecasts as a return to growth for key cancer drug Avastin and strong growth of hepatitis drug Pegasys helped counterbalance hits from the strong franc and cuts to health budget spending.
"The Q2 2012 outperformance, driven by a stronger-than-expected performance of large cancer drugs and Pegasys, particularly in the USA, compensating for ongoing pricing pressure in Europe should provide confidence," said Helvea analyst Karl-Heinz Koch.
Roche shares closed up 1.56 percent, outperforming a 0.8 percent firmer European health sector.
The bid for Illumina is part of Roche's move into more personalized medicines helped by advances in genetics research, and is spurred by the challenges facing the global drugs industry, including patent expiries and government price cuts.
Roche is better positioned than most to weather the storm, however, since its top-selling cancer medicines do not face imminent generic competition.
Even so, it has not been able to escape the impact of austerity measures in Europe, where many countries have imposed big cuts in their medicine bills. Roche said those pricing effects shaved 1.5 percent off European sales in the quarter.
Roche reiterated that it hoped sales would grow in the low-to-mid single digit range at constant exchange rates this year, while core earnings would grow in the high single-digits.
Sales of Avastin rose 1 percent to 1.385 billion francs, meeting average analyst forecasts and reversing several quarters of decline for what used to be Roche's top-selling drug. Roche reiterated its peak sales forecast of 7 billion francs.
Avastin, hit last year when the United States revoked its conditional approval as a treatment for breast cancer, has been overtaken by Roche's other cancer drugs Rituxan and Herceptin, which both saw sales grow 7 percent in the quarter.
"Oncology revenues (Avastin, Herceptin, Rituxan) overall performed about 1 percent better than expected," said Vontobel analyst Andrew Weiss.
Roche said Avastin's growth was mainly driven by increased use in lung and colon cancer, with growth in Japan and emerging markets offsetting a modest decline in western Europe, while sales stabilized in the United States.
Roche expects Avastin sales to continue to grow "in the next few quarters", Pascal Soriot, head of the pharmaceuticals division, told a conference call for analysts.
Another highlight was a 32 percent jump in sales for hepatitis drug Pegasys, driven by increased demand in the United States for use in triple combination therapy.
(Reporting by Emma Thomasson; Editing by Mark Potter and Helen Massy-Beresford)
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