Guest Post: The Next Feeding Frenzy? VCs Rush Toward Diagnostics (!?)

Steve Dickman is the CEO of CBT Advisors. He blogs about biotech, VC and personalized medicine at Boston Biotech Watch. Interested in guest blogging for In Vivo? Drop us a line here.

There was a time not long ago when no amount of persuasion could have made most venture capitalists do a diagnostics deal. The reasons abounded: markets were too limited; margins were too low; and the number of potential acquirers too small. So imagine our surprise when the most upbeat session of this year’s c21 investor conference in late May was a panel discussion focused on – you guessed it – molecular diagnostics.

If this is not a feeding frenzy, then at least it seems to be a period of high marketability for private diagnostics companies seeking acquisition exits. Session chair Bill Kreidel of Ferghana Partners described four sell side diagnostics assignments his firm is working on for which multiple bidders had appeared.

What sells? Proprietary content, improvements in speed or sensitivity/specificity, robust datasets, and large markets. Who are the buyers? Clinical labs like Labcorp, naturally, but also instrumentation companies in the imaging business like General Electric that “see diagnostics cannibalizing some of their revenue” and are trying to capture it back, said panelist Dion Madsen of Physic Ventures.

The advent of acquirers such as GE has caused venture firms to change their tune. The three venture capitalists on the panel certainly weren’t diagnostic neophytes. Madsen, Dr. Rowan Chapman of Mohr Davidow Ventures, and Dr. William Gerber of Bay City Capital have all made numerous investments in diagnostics and personalized medicine including Tethys Bioscience and CardioDX, clinical lab companies that recently reached commercial status.

And there have been some impressive diagnostic exits driving venture interest. Switzerland-based HBM Partners, for instance, announced last September that it had earned a 21.6x multiple on its investment in Brahms, a Berlin-based diagnostics company acquired by Thermo Fisher.

But the information asymmetry that led to that deal has begun to recede now that investors have woken up to the opportunity. Still, in today’s market, where the environment is driven by cost constraints rather than spending, the locus of value is shifting earlier, toward diagnosis and away from treatment. In other words, knowing in which patients a therapy will work is as important as knowing whether it will work at all.

One common approach is for a company to walk into a VC firm and say “We are the next Genomic Health”, a Nasdaq-listed company (ticker GHDX) with OncotypeDX, a commercial breast cancer test, as if that were an appropriate role model. But Genomic Health, its stock down 25% in the last quarter, is not only not a role model, it’s a bad example, Madsen said.

“We still get companies saying they will be the next Genomic Health and we say, we don’t WANT you to be that!” emphasized Madsen. Gerber, whose fund did not invest in that biotech, added “Their first study was published in ’04 and it’s six years later and they are just about to break even!”

Circumstances have drastically changed both for IPO exits and for reimbursement in the interim. At the moment, an IPO is an unlikely dream for companies that do not have tens of millions of dollars in revenue. And reimbursement is complicated by both the murky regulatory situation and the unlikely circumstances that allowed the company to get reimbursed at unprecedented levels. “Breakeven [for Genomic Health] is predicated on a $3,000 price point,” Kreidel observed, “not something most diagnostics companies can aspire to”--except, we would argue, in oncology.

Adding to the complexity is a lack of clarity on the regulatory front. At the rate the Food and Drug Administration is moving it will be 2011 before companies offering algorithm-based tests like OncotypeDX have a clear path forward. (When will the regulations arrive? “There are as many answers to that question as there are consultants in Washington,” quipped the fourth panelist, Bruce Cohen, CEO of VitaPath Genetics.)

So VC-backed companies are working on building proprietary content strong enough to stand up to any level of regulatory scrutiny. What does content mean? (See here for a blog post explaining Madsen’s views on the subject and his criteria for what makes a “doable deal” in diagnostics.) Put simply, “content” is the unique ability to make a diagnosis or link a drug to efficacy in a particular patient in a reproducible way.

Three quick examples of the content-driven, data-intensive approach:

• VitaPath Genetics, a Mohr Davidow portfolio company developing a cheek-swab test for spina bifida risk early in prior to pregnancy. It ran a 2,100-subject study to validate its test and hopes to go commercial by 2011 on a modest $15 million.


• On-Q-Ity, a Boston-area company invested in by both Physic and Mohr Davidow is another example. To develop a commercial test to inform physicians when to treat cancer aggressively or even which chemotherapeutic agents to deploy, On-Q-Ity will require an “intensive analysis of tumor samples” and a “huge bioinformatics exercise,” he said.
  


• A third company, mentioned but left unnamed by Kreidel, has apparently achieved a remarkable level of sensitivity and specificity in predicting ovarian cancer, an area of huge unmet need where a better test would help thousands of women avoid surgery – and help insurers avoid paying for it.

So the new VC recipe goes like this: Find a potential market for which reimbursement is uncertain. Define a plan based on capturing reliable data from the vagaries of human biology. Invest VC dollars to collect the data. Crunch the numbers. Then see what you’ve got.

Hmmm. The risk profile sounds almost like …drum roll, please… therapeutics investing.

But it’s actually better – fewer dollars in, earlier clinical signals. And now, more likely exits with no need for an IPO. No wonder there are more investors than ever in this space. Some of them are likely to go home winners.– Steve Dickman

image from flickr user chamer80 used under a creative commons license

Financings of the Fortnight Looks for Its Shadow

We are always on the lookout for leading indicators, no matter how faint the signal. If you tend an herb garden on your back porch, you might prefer the "green shoots" metaphor. Ever hopeful that the second law of thermodynamics isn't really the guiding principle ruling our lives, we humans also imbue natural events and public rituals with significance. Earthquakes as divine punishment! The groundhog's shadow! That said, we should say right off the bat that Genmark Diagnostics is no Punxsutawney Phil.

Yes, Virginia, there was an IPO last week, and its name was Genmark. But it wasn't the sort that necessarily means a damn thing. An obscure UK diagnostics firm formerly known as Osmetech that creates a US subsidiary, reverse-merges into it to reach US shareholders -- and only pulls in $28 million after shooting for as much as $45 million, for that matter -- is only that. An N of one.

Yet it came at a time when we were already thinking about diagnostics, and funding, and the funding of diagnostics. The low-profile offering, tucked just in front of the long holiday weekend, was also sandwiched between two conferences that opened different windows on the application of genetic information. At a consumer genetics show in Boston this week, funding strategies weren't explicitly on the menu, but as our correspondents noted, it's becoming ever more clear that cost breakthroughs in sequencing will lead to identification of medically significant genetic variations in patients. The question then becomes, what do you do with them?

That was the topic last week at the C21 venture conference in California's Napa Valley, where the diagnostics panel drew an eager crowd looking for ways to put money into -- buzzword alert! -- low-cost innovation. (That is, really cool stuff that doesn't cost a lot to make.)

And as our colleague Mark Ratner noted in his recent IN VIVO feature, despite the early days of most genetic research, a trio of well-known VCs -- Kleiner Perkins Caulfield & Byers, Mohr Davidow Ventures, and TPG -- have spread their diagnostic bets further, particularly into cardiology, after hitting the jackpot with breast-cancer test maker Genomic Health. Genmark isn't in their portfolios, but as we've seen on the drug side, any IPO activity after the long dry spell of 2008-2009 is worth scrutiny, not just as an indicator for current portfolio companies but for investors looking to jump in. One of the keys to diagnostics is getting pharma's attention in a variety of ways, such as using tests as a marketing tool when a drug rep is out detailing. We'll let Ratner explain:

The raison d'etre of new molecular tests is to significantly add to the information available to physicians to enable or change critical clinical decision-making. Especially at a time when the pace of new drug introductions is slowing and the opportunities to meet face-to-face with physicians therefore diminishing, as molecular diagnostics moves into new and broad markets like cardiology and metabolic disease, pharma could use this opportunity to its advantage in many settings.

In the case of a specific cardio test called Corus CAD, Ratner writes, "There's sufficient novelty and interest in genetics and genomics associated with coronary disease that [drug reps] could start a dialog with a physician about Corus CAD and at some point change to their drug-oriented message."

Diagnostic brethren such as LabCorp, Roche and Qiagen make splashy acquisitions; pure-play pharmas probably won't, though some are keeping their options open. Other deals will come from industrial giants such as General Electric and Procter & Gamble. But with massive hoards of cash to spend, any sign of pharma opening its coffers for diagnostics deals could mark a big change in the way VCs invest, which despite a few high-profile deals hasn't been that stunning. According to the Elsevier Strategic Transactions database, investment in diagnostics, over $1 billion annually for most of the past decade, is trending lower this year with $273 million through May.

Then again, life-science investing is down across the board this year. Have no fear, there's always plenty of material to bring you...



Tetraphase Pharmaceuticals: The antibiotic developer pulled in a $45 million Series C round to push its lead candidate into Phase II trials later this year, marking another step toward filling what public-health officials say is a ever-growing need: next-generation treatments to fight drug-resistant Gram-negative bacteria, as noted by our colleagues at START-UP. Tetraphase starts with a tetracycline backbone and then modifies the molecule at multiple positions to create an extremely large library. These molecules then can be screened for both their anti-infective properties and their potential to cause off-target toxicities. The lead compound, the intravenous TP-434, will likely focus initially on intra-abdominal infections. The Series C cash will also help push two more compounds -- TP-2758, for complicated urinary tract infections and TP-834, for the treatment of community acquired bacterial pneumonia -into Phase I. Excel Venture Management, a new investor for the biotech, led the round joined by existing backers: CMEA Capital, Fidelity Biosciences, Flagship Ventures, Mediphase Venture Partners and Skyline Ventures. Steve Gullans, managing director of Excel Venture Management, will join Tetraphase's board of directors. -- Carlene Olsen

NormOxys: The developer of small-molecule oxygen-enhancing drugs to treat a variety of diseases announced on May 24 a $17.5 million Series B financing. In addition to existing backer Index Ventures, Care Capital participated in the most recent financing round, with partner Argeris "Jerry" Karabelas joining the start-up's board of directors. It brings the firm's total funding to $30 million. With its novel platform technology and top-notch scientific pedigree, NormOxys has raised a sizeable but not extraordinary amount of additional cash from A-list backers and avoided too much dilution. It can now also aim for a more lucrative big pharma partnership -- whether it's a licensing deal or acquisition -- once the lead molecule, and thus the company's platform, have been derisked. The lead molecule is OXY111a, which the firm calls an "oxyren," for its oxygen-releasing capabilities. It changes the offloading capacity of hemoglobin so that more oxygen can be delivered to tissues where needed. If all goes to plan, it shouldn't result in excess oxygen delivery to normal tissue, which can cause damage because of free radical production. Equally important, say officials, is that the molecule triggering the actual physiological changes is oxygen itself, not the oxyren. Thus, potential off-target side-effects that have scuppered artificial blood substitutes such as Biopure's Hemopure, Northfield Laboratories' PolyHeme, and Baxter Healthcare's HemAssist, should be less problematic. OXY111a is entering Phase I trials with a later goal of testing it against chronic heart failure and an undisclosed cancer indication. -- Ellen Foster Licking

Exelixis: The San Francisco Bay Area public biotech is no stranger to all kinds of financing deals, and now it's turned again to debt to help expand the late-stage development of lead candidate XL184. Exelixis said June 3 it has secured loans worth $160 million from two lenders at an aggregate cost of capital under 10%. Part of the cash will pay back a loan from GlaxoSmithKline, a remnant of the firms' broad, six-year license-and-option deal signed in 2002. It will also fund XL184, which should enter Phase III trials for second-line glioblastoma by the end of 2010, with more Phase III trials possibly coming in 2011. XL184 was rejected by GSK before the six-year deal expired in late 2008, but Exelixis pivoted into a lucrative deal with Bristol-Myers Squibb, which pays 65% of XL184 development costs. It is currently in Phase III for medullary thyroid cancer and earlier-stage trials for glioblastoma. Exelixis is tapping Silicon Valley Bank for $80 million with a seven-year term loan at 1% interest. It's also borrowing $80 million from Deerfield Management, a five-year term with a maximum principal of $124 million. Interest is $6 million a year. Exelixis opened a line of credit with Deerfield in 2008 that, at the time, officials said they hoped never to draw down from. But with a 40% cut in staff in March the firm is shifting resources to late-stage development, which is still expensive even with big-pharma partners footing much of the bill. -- A.L.

Constellation Pharmaceuticals: Epigenetics pioneer Constellation added a corporate venture backer, GlaxoSmithKline's venture arm SR One, in a $22 million Series B financing announced June 2. In addition to SR One, previous investors Third Rock Ventures, The Column Group, Venrock Associates, and Altitude Life Science Ventures, which led the company’s $32 million Series A in 2008, all participated in the round. SR One’s cash should help Constellation keep pace with its main competitor, Epizyme, which obtained backing from Amgen Ventures and Astellas Venture Management in its own $40 million Series B last fall. Neither company has reached the clinic. Both are focused primarily on cancer, but Constellation of Cambridge, Mass. hopes to move eventually into diabetes, autoimmune, inflammatory and neurological diseases. Epigenetics focuses on chemical modification to chromatin, the proteins that package DNA, to create therapeutics that influence gene expression. Two classes of such drugs already are on the market: Celgene’s Vidaza and Eisai’s Dacogen, both DNA-methylation molecules approved for myelodysplastic syndromes, and Merck’s Vorinostat, a histone deacetylase (HDAC) inhibitor for T-cell cutaneous lymphoma. At least two other HDAC inhibitors are in late-stage development for oncology indications. -- Joseph Haas

Extra thanks to Mark Ratner for help with this week's post. Photo courtesy of flickr user avmaier.

Swiss Addex Now on BVF's Watch List

Biotechnology Value Fund is making moves. Public records show the high-profile public investor recently grabbed a 6.6% share of the staggering Swiss firm Addex Pharmaceuticals. BVF sometimes makes public its reasons for piling into a stock, but the Feb. 5 document held no clue, and so far BVF hasn't gotten back to us. (We'll keep you posted.)

Allow us to cogitate upon the news. BVF could be making a straight value play. Addex closed today at 11 CHF per share. That's down nearly 75% from a high of 41.95 CHF just before safety data for its lead candidate tanked the stock in mid-December.

Addex pulled the plug on its lead candidate ADX10059, a metabotropic glutamate receptor 5 (mGluR5) modulator, when its Phase IIb data for migraines revealed elevated liver enzymes. Addex immediately halted another Phase IIb, for reflux. The company was expected to pull in a big licensing deal, but hope for that vanished with the safety revelations.

Obviously BVF thinks the company is undervalued. Addex, after all, has generated a pipeline of molecules via its allosteric modulation platform. But how much will it push for managerial and/or strategic change? CEO Vincent Mutel said in December he didn't think the safety failure of '059 was a class effect that would cripple another important compound in Addex's pipeline. It remains to be seen if BVF will attempt to steer Addex's R&D efforts in a different direction.

Given BVF has done its share of cage-rattling recently, it certainly might. Recall the fund used its 30% stake in Avigen to steer the firm into a merger with MediciNova last August. And last week BVF went public with a suggestion that diagnostics firm Celera, of which it owns nearly 10%, spin out the royalty stream associated with the Phase III osteoporosis drug odanacatib.

Merck is developing odanacatib as a potential replacement for its now-generic Fosamax (alendronate), once a $3 billion annual cash cow. Celera, which has reinvented itself several times since its founding by Craig Venter, doesn't do drug development anymore--its main business is developing diagnostic tests, including ones for cystic fibrosis and HIV genotyping. Still it's owed a "mid- to mid-high single digit" percentage royalty on sales if odanacatib comes to market.

BVF wrote in the Feb. 9 filing that, "if successful, the royalty asset could generate tremendous free cash flow for the Issuer’s shareholders and, accordingly, this single asset could be worth a significant multiple of the Issuer's current market value."

Since October BVF has bought about a million shares of Celera, all in the range of $6.09 to $6.30 per share. Shares closed Thursday at $7.01, giving it a market cap of $574 million.

With at least one portfolio company, however, BVF has bided its time. It holds a 16% stake in Facet Biotech but agreed not to tender its shares when Facet development partner Biogen Idec went hostile with a $14.50-per-share bid last fall. In exchange for permission to up its Facet stake above 15% without triggering a poison pill plan, BVF held fast when Biogen upped its offer to $17.50. Biogen dropped its bid in mid-December. -- Alex Lash

Photo courtesy of flicker user kevin.

"Can we Learn to Love Diagnostics?" asks Roche's New Dx Chief

Well, not exactly love, but care more about them, at least? This is what Daniel O’Day, the newly installed head of Roche’s diagnostics division, asked an audience of analysts attending Roche's annual results meeting in London last week.

Appointed in September 2009, O'Day, of course, wants the answer to be 'yes'. But the analysts may have appeared less than enthusiastic.

O'Day has a point, though: with personalized medicine heralded as the holy grail of health care, someone has to inject enthusiasm and commitment into converting ideas into solid products.

Unlike most of his pre-decessors (including, most recently, Juergen Schwiezer), O’Day has apparently spent more years in pharma than in diagnostics. He has held various positions within Roche Pharma since 1987, before becoming head of Roche Molecular Diagnostics in the US in 2006. This dual background in both sides of the business means O'Day could be the man to raise the profile of Dx.

Critically, he also has the backing of other Roche execs, who believe the “pull” from clinicians demanding personalized-medicine tests will make it an attractive, i.e. lucrative, business to be in.

Okay, so many companies, including Roche, have said, or at least believed, that for years. But it probably helps that Roche's CEO Severin Schwan worked for a decade in the diagnostics side of the business (and before that in finance), before taking the top-spot in June 2008.

At the moment, the problem with diagnostics and instruments in general is their rapid commoditization, as laboratories continually demand higher-throughput screens at ever-lower costs.

Within Roche, having pharma working closely with diagnostics on personalized medicine can apparently pay dividends for the instrument guys--in the sense that pharma can help them get their way from the corporate powers-that-be. For instance, the company recently invested in a new technology platform because the pharma side wanted it. Diagnostics, meanwhile, was having difficulty justifying the expense.

That example says a lot about the current pecking order, however, even though it's admittedly a good sign for the future of Rx-Dx collaboration. Meanwhile, though, Roche is putting its money where its mouth is: it has up to 40 companion diagnostics in development with specific pharmaceutical products.

And indeed, starting parallel development of a drug and a companion diagnostic early on (rather than having drug firms clamor for a diagnostic once their product is close to, or on, the market) makes sense. It's something stand-along diagnostics firms like the UK's DxS (part of Qiagen since last year) have been calling for, unsurprisingly enough.

Rx-Dx tie-ups are happening, though. In July 2009, GlaxoSmithKline and Abbott announced that they would develop a companion diagnostic for GSK's investigational MAGE-A3 immunotherapy. In 2008, DxS partnered with Amgen to develop a K-RAS companion diagnostic to predict whether a patient with metastatic colorectal cancer will respond to Vectibix.

That said, no one--likely not even O'Day--expects a sudden flood of companion diagnostics to hit the market next week, though. But the signs are that we may soon have more than Dako's Hercep-Test (launched in 1998 to help predict who would repond to breast cancer drug Herceptin) and DxS's K-RAS mutation detection kit to talk about.

--By John Davis (j.davis@elsevier.com)

image by flikrer mozzercork used under a creative commons license

Schwan Song

Roche’s announcement that Severin Schwan, the head of its Diagnostics division, is set to succeed Franz Humer as CEO of the Roche Group next March came just hours after we’d filed a story for the upcoming issue of IN VIVO looking at Roche’s recent acquisitions, including its ongoing $3 billion hostile tender offer for anatomic pathology specialist Ventana Medical Systems. Given his recent history in diagnostics, the Schwan news would’ve made an excellent punch line to the article, which talks about the firm’s belief in diagnostics and its bet that personalized medicine--an area where innovative platforms and molecular test content will play significant if separate roles—will be key to its long-term growth.

This past Monday, the IN VIVO Blog also cited a rumor that Novartis could be grooming Joerg Reinhardt, the head of its vaccines and diagnostics businesses, as successor to CEO Dan Vasella.

Is it a coincidence that both firms are turning to Dx veterans? Novartis doesn’t have an in vitro diagnostics business anything like the scope of Roche’s, nor does it have a life sciences research tools unit. But Novartis knows blood banking, to which it has applied a nucleic-acid test (NAT) based platform for virology testing. And like Roche, Novartis has a significant investment in targeted cancer therapies, for which companion diagnostics are assumed to play a vital part. (Ventana, for example, markets a molecular test to gauge patients’ potential to respond to Novartis’ Gleevec).

So maybe it's a good time to examine Roche’s strategy.

Unlike other Big Pharmas (including Novartis), Roche has dedicated itself to the in-house development of companion tests. Its molecular diagnostics unit has developed know-how around adapting microarray technology to clinical diagnostics--one of the most complex aspects of the approval process for drug-diagnostic tandems--via a series of collaborations with Affymetrix, leading to tests for mutations in the p450 and cystic fibrosis genes. Roche is applying the same tools to developing its own drugs, including a p53 diagnostic for a cancer drug that binds wild type p53. And before Roche took rights to Plexxikon’s PLX4032 cancer program, which inhibits a gene mutation present in roughly two-thirds of melanomas, the two companies had begun a diagnostics collaboration around a molecular test for the mutation. Indeed, one reason Roche paid so much for the Plexxikon compound was that the companion diagnostic could dramatically expand its market into solid tumors by targeting the same mutation in those far more common cancers.

Roche has the free cash to invest in its diagnostics businesses and is clearly aiming at personalized medicine as a principal way to bolster them long term – and importantly, also support the development of targeted drugs on its pharmaceutical side. On the conference call discussing the Ventana tender offer Schwan said flatly that Roche wants it for strategic reasons relating to its drug business. The Ventana deal “is very much driven by the synergies we have on the R&D side, by the development of targeted medicines. The real value is that we can leverage the different capabilities across the entire Roche Group,” he said. “The earlier you start the exchange of ideas between pharma research and diagnostics, the better chance you have to come in parallel with the development of a companion diagnostic,” added Roche CFO Erich Hunziker.

It’s long been held that pharma holds all the leverage when it comes to drug-diagnostics partnerships. But the demand for innovative test content to run on molecular diagnostics platforms is increasing: witness the recent upswing in deal-making, along with renewed VC interest in diagnostics. It suggests that the area's potential to drive health-care innovation by directing therapy more efficiently is finally being recognized. Even Abbott Labs noted this when, in the wake of the breakup of GE Healthcare’s bid to acquire Abbott's diagnostics businesses, Ed Michael, Abbott’s newly appointed head of diagnostics, commented to us that there are synergies between all of its diagnostics divisions--especially between the molecular and point-of-care testing businesses.

So if pharma companies truly believe in the vision – and more to the point, the necessity -- of personalized medicine, and if the development of tandem drug-diagnostic combos is best started early in development, it makes sense they’d want their senior executives to have hands-on experience with the ins and outs of diagnostics development. Finally.

Inverness' String of "I do's"

Inverness Medical Innovations certainly has no problems with commitment.

The Waltham, Mass-based diagnostics company—still in the process of integrating Biosite Inc., for which it paid $1.6 billion—grabbed a 51% stake in Diamics Inc., developer of a molecular based cervical cancer diagnostic.

The privately held Diamics took considerably less bling, requiring roughly $6 million in a staged investment, according to a release on the deal. But still it goes to show the Inverness isn’t allowing the megamerger with Biosite to take its eyes off the prize of building a broad portfolio of diagnostics the ole' fashion way--buying them. (By our count, this is number nine--or 8.51 if you consider the equity stake.)

While the Biosite deal (as well as the pending acquisition of Cholestech Corp.) gives Inverness’ cardiovascular practice a significant boost, (for an overview on Inverness check out your July IN VIVO), the Diamics deal falls closer to Inverness’ roots—women’s health care. Diamics is developing “a line of products designed to improve the effectiveness of cervical cancer screening and make the procedures less painful for patients,” according to the release. For a full profile on the company, check out last October’s START-UP Magazine.

Although Wall Street analysts say they don’t expect Inverness to make any major purchases in the future, the company has the firepower and desire to continue inking deals like this one.

Roche to Ventana: We want you so bad

It was apparent from today's Roche investor call that five months of trying to open acquisition discussions with Ventana Medical Systems has left the Swiss firm frustrated and desperate. It may well win the fair hand of Ventana with some combination of a carrot (we'd be so good together) and/or a stick (we're gonna get ya one way or the other), but by putting its cards on the table the way it has, Roche seems to have given Ventana all the leverage.

Several times, CFO Erich Hunziker acknowledged the strength of his firm's desire. "You may ask why Roche sees a certain urgency for this deal," he said early in the call. "Leaving Ventana's successful team unchanged and giving them the support of a global company could be very crucial at a time when key competitors in this market are still aligning their efforts after having just been taken over," he declared. "We are prepared for long discussions but a quick negotiated solution would have clear benefits for everybody involved." Roche has proposed in writing a Genentech-style buyout of a majority of Ventana's shares, as well as yesterday's announced hostile tender plan, which values Ventana at $3 billion, or 44% above Ventana's June 22 closing stock price. Under either scenario, it has promised to keep Ventana independent and in place ("We love you just the way you are..."). Thus far, however, Ventana is still screening Roche's calls.

With Ventana, a specialist in tissue-based oncology assays using both IHC and ISH (in situ hybridization) techniques, in the fold, Roche believes it would have a complete set of diagnostic technologies for the development of oncology drugs and companion diagnostics, including for therapy selection. And importantly, it would have the ability to begin the development process--for itself as well as for other companies that work with it on a service basis--early. "The earlier you start the exchange of ideas between pharma research and diagnostics, the better chance you have to come in parallel with the development of a companion diagnostic," Hunziker explained, adding that at this early stage of the research discussion, "not all of the IP is protected. I think you would shy away from opening up totally with a third party with whom you just have a partnership."

That's fine from Roche's point of view, but our guess is that Ventana does not necessarily share that perspective, and may prefer the potential clout such an interdependency could give it. It is, after all, already collaborating with Genentech (successfully, says Roche), Novartis, and ImClone.

Ventana also surely knows that, like Biosite and others with the rare commodity of molecular diagnostic content, it will command a sizable dowry tomorrow as well as today. Other potential acquirers, like GE, may indeed be wrapped up in merger integration at the moment. Or they may be on the phone with Ventana right now.

Roche makes Ventana an offer it may or may not be able to refuse: $3 billion

As the market in the US closed today, Roche offered to buy the histopathology company Ventana Medical Systems for $75 per share, or about $3 billion to complement its in vitro diagnostics business. The bid is a 44% premium to Ventana's share price last Friday.

Lovely. The only problem? Ventana isn't playing ball. Which forced Roche to go public with the offer, and even disclose Roche chairman and CEO Franz Humer's "Dear Jack" letter to Ventana CEO Jack Schuler (see the link the the PR, above). Apparently Jack won't even take Franz's telephone calls; Ventana has been unwilling to engage in dialogue, etc. (No word on whether Ventana still sends Roche flowers or sings it love songs. We'll keep you posted.)

Meanwhile, there's a call for investors tomorrow--more to come.