Genentech Inc. (DNA) took another swing at Roche Holding AG (RHHBY) by rejecting the Swiss drug giant's tender offer of $86.50 a share in what is likely an early round of an increasingly bitter fight.

At this point, though, most judges' scorecards have Roche ultimately winning the 44% of the South San Francisco biotech that it doesn't already own.

How long the boxing match goes, however, remains a mystery. The next steps are the March 12 expiration of Roche's tender offer and the highly anticipated data on Genentech's Avastin, coming as soon as April, which will likely alter the price of the deal.

"It appears to us inevitable that Genentech ... will become a fully integrated part of Roche in a matter of months," Sanford Bernstein analyst Geoffrey Porges said.

But the hostile air surrounding the two companies, and the wide disparity on their perceived value of Genentech, suggests a deal is unlikely soon. There has been minimal contact between the two companies in recent weeks, and the tone of their respective filings with the Securities and Exchange Commission is anything but friendly.

"We do not expect many shares to be tendered to Roche by their deadline," Porges said. "At that point the offer expires, and investors will be in limbo until the Avastin adjuvant data is disclosed."

Following that data, which tests Avastin's usefulness in preventing relapse of colorectal cancer following surgery, Porges expects Roche to resume contact with the independent directors and offer between $95 and $105 a share upon positive data, or $82 to $85 on negative data.

A Roche spokesman wouldn't comment on the Genentech board's rejection or Roche's next move, but said the matter is now in the hands of Genentech shareholders.

The independent board's rejection Monday wasn't a surprise, as it already rejected an $89-a-share approach from Roche in July as "substantially" undervaluing the company. Since the summer, the two parties reached an impasse and disagreed on where to even begin negotiating - Roche stood by its initial offer, and Genentech's independent board proposed beginning at $112 a share.

The delay has brought the drama closer to the release of the Avastin adjuvant data that Genentech previously had expected in mid-year.

The trial's success could add billions of dollars in annual sales of Avastin, which treats advanced breast, lung and colorectal cancer with 2008 sales of $2.69 billion, but its failure could translate to slowing growth. The study is run by a third-party cooperative, and there is no indication that either company is aware of how the trial is progressing.

 
   Genentech Meeting Monday

In the near term, Genentech moved up its annual investor meeting to March 2 from March 20. Officials declined to comment on the reasons for the move, although the company is expected to argue why it's worth more than Roche's offer.

As Roche has taken its offer directly to shareholders, the earlier Genentech meeting allows the company to make its case directly to those same investors before the tender offer's deadline.

Genentech is expected to highlight its product pipeline and potentially update its long-term financial projections, both of which are key to its value argument with Roche. Though Genentech holds the meeting every year, any new comments on a potential Roche deal will clearly be the focus.

"In our opinion, Roche may raise its tender offer price in the next few weeks," Deutsche Bank analyst Mark Schoenebaum said in a note to clients. Even if the adjuvant trial fails, Schoenebaum noted, a deal for Genentech at $95 a share would add to Roche's profits.

Many analysts expect a higher bid, and Roche hasn't given any indication that it won't raise the price. Roche's recent $16 billion bond sale has reassured some investors that Roche can now raise its offer.

Genentech's stock price, recently up 59 cents to $85.38, is reflecting that optimism as it has been at its highest levels since Roche disclosed its tender offer in late January, despite the pressure on the broader markets.

The stock hit $99.14 after the first bid was announced in July but collapsed in September amid anxiety about whether Roche could raise the funds needed to close the deal.

Roche's American Depositary Shares, meanwhile, fell Tuesday to their lowest point since May 2005 and recently traded at $29.67, down 1.4%.

 
   Friction And Persistence

Regardless of any delay, Roche is seen closing the deal because of previous success, its apparent ability to finance the deal in the difficult funding environment, and its confidence moving forward with its strategy of owning Genentech.

Indeed, Genentech said in an SEC filing that Roche "has already taken substantial, irreversible steps to begin integrating the two companies, including workforce reductions and realignments in Roche's U.S. operations."

Genentech acknowledged the move is a sign that Roche is unlikely to abandon its pursuit of full ownership.

Roche's persistence, and the friction between the companies, seems to go back to late 2007 when Roche pushed to alter anti-dilution rights under a 1999 affiliation agreement that allows it to purchase enough Genentech shares to maintain its ownership percentage if Genentech issues additional equity.

Roche sought to purchase Genentech shares in the open market at that time, but wanted the dilution protection to reflect its new majority percentage.

Genentech rejected such a move after concluding that it had meaningful value to Roche and Genentech should receive compensation in return for such an amendment.

In response, Roche informed Genentech that there would be "consequences" for the move and continued to encourage the amendment. Genentech implied that the rejection was followed by Roche beginning to consider its bid for total control of the company.

In launching the offer earlier this month, Roche noted that it wouldn't "simply continue the existing relationship where [Genentech] operates with substantial autonomy despite Roche's majority ownership."

-By Thomas Gryta, Dow Jones Newswires; 201-938-2053; thomas.gryta@dowjones.com