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Biotech / Medical : Biotech Valuation -- Ignore unavailable to you. Want to Upgrade?

To: Biomaven who wrote (5322)	1/4/2002 10:41:33 AM
From: quidditch	Read Replies (1) \| Respond to of 52153

Peter, musing: A holdback of that size if true is, while obviously tied to the purchase price agreed to between Roche and BI (which was $____?), seems to exceed the parameters of the standard, prophylactic (i.e., no smoking gun litigation about to be decided adversely) litigation holdback to a large degree. If you or anyone knows, was BI subject to a key pending and/or contingent claim or claims? Clearly, they must have included potential material claimants in addition to IGEN or this would have been discoverable and used at trial. The license is, obviously, the key to any settlement, buyout or not. Business as usual with Roche under the license is out of the question. Perhaps a combination of payment of damages, without Roche having to publicly acknowledge the (punitive/unfair competition) nature of some portion thereof, with court appointed expert to ensure compliance with terms going forward. This is something that courts are generally loathe to do, and would be repugnant to Roche, but in fashioning remedies it has been done on occasion where the history between the parties warrants. The unfortunate problem, in part, is that going forward the license is worth more to IGEN and Roche in Roche's hands. How long would it take for an Abbott or a J&J to gear up, become expertised in reagents, administration and effectively sell IGEN's full menu of technology? Any settlement involving transfer of the ipr, via buyout or otherwise, obviously has to take into account not only the rearview (compensatory, unfair competition, punitive damages) but must also discount the future value of the ipr. Under the circumstances, the analysis of the value of the future revenue stream under the license is ineluctably and regrettably tied to the sordid past between the parties, and that future revenue stream is likely very many tens of $millions apart depending on whether one adopts IGEN's view of the past or Roche's. Past becomes predicate. Neither party will (in its parochial view of the value) easily assent to be penalized twice by accepting the other party's view of that history. In a sense, the parties can not settle their dispute, at least as to the future revenue, having gone this far, until the impartial factfinder ratified whose view is the (more) correct one. As pointed out earlier, no less repugnant to Roche is yet another decision (this one in court) that assails its business practices and makes it pay up, and up. Eventually, even the stolid Swiss and German stockholders may get fed up and begin forcing embarrassing questions on management. quid

To: Biomaven who wrote (5322)	1/4/2002 12:28:17 PM
From: RCMac	Respond to of 52153

It has been reported that Roche kept back a billion dollars in their acquisition to pay for potential lawsuits. I could imagine that the terms of that agreement allow for either BI to approve any settlement or for the holdback to be retained by Roche only if Roche actually loses a judicial decision. If a potential settlement is over a billion, BI would have no incentive to approve, and so Roche is forced to go to court and wait for a judicial decision setting damages. It's possible, I suppose, but it would have to be a somewhat odd holdback provision. (Although the business customs of German-speaking pharmaceutical companies are possibly as foreign to me as the ways of U.S. courts probably are to Roche.<g>) Such holdbacks, escrow accounts, etc. are a pretty common device in acquisitions for dealing with contingent liabilities, because they are very useful. If disclosures of pending litigation or claims make the potential acquiror nervous, and the selling shareholders are unwilling to assume the potential liability, the compromise to get the deal done is often a holdback; the acquiror holds some funds against the potential liability, with the excess reverting to the seller after the claims are paid. I think it's very unlikely that the holdback provisison in the M&A documents requires a judicial decision. That would rob the acquiring company of any flexibility to settle a claim -- seriously dumb, since many such claims are better settled rather than risk a jury verdict, especially the "thin liability, big damages" variety. But it's possible that Boehringer has some control over the settlement, or at least some right of consultation -- it's at least potentially Boehringer's money, so they would ask for something like that in the negotiations. Would Boehringer have the power to just say no, and make Roche sit still in the face of possible multi-billion dollar liability and loss of the license? A well-drafted provision would have some language about resolving such a dispute, but they may not have thought about the risk of a really huge judgment, but if they thought about it enough to hold back a billion (if that's the actual number), they should have thought about it. Why hasn't Roche settled? I lean to the theory that Roche and its controlling shareholders (descendants of the founders) -- management would would surely have to clear any cash settlement or IGEN acquisition with them -- really don't understand the risks of a big jury verdict, and that it may take a verdict to educate them. Potentially costly ignorance, especially since they will surely lose the license, plus old-fashioned wishful thinking. In any event, as A.J. put it in post #5315, "it will be easier for them with their shareholders if they can paint their loss as 'just another of the those crazy outcomes from the system that awards millions for someone hurt by hot coffee.'" Probably this settles with Roche buying IGEN after the verdict -- Roche can't stand 12-15 months of appeal with its sales of new ORIGEN-based machines dead in the water. BTW, I assume you've noticed that, as I feared in my post #5311, Lawfighter has now confirmed that the damages subject to trebling are a very small amount, so visions of three times the $700M compensatory damages have faded, although this leaves lots of room for substantial punitives. messages.yahoo.com --RCM