Roche looks to buy Genentech

Roche has proposed to acquire the outstanding publicly-held interest in Genentech for US$89.00 per share in cash, or a total payment of approximately US$43.7 billion to equity holders of Genentech other than Roche. Roche acquired a majority stake in Genentech in 1990 and currently owns 55.9 per cent of all outstanding shares.

The offer represents a one-day premium of 8.8 per cent to Genentech's closing price of US$81.82 on 18th July and a one-month premium of 19.0 per cent to Genentech's closing price of US$74.76 on 20th June. However, many analysts predict that the move undervalues the company and Genentech will refuse the initial offer, pricing the company higher at between US$100.00 and US$120.00 per share.

If the deal does go through then it would be the biggest in the sector since Pfizer paid US$57 billion for Pharmacia five years ago. The pharmaceutical sector is witnessing a spate of acquisitions of biotech companies as groups search for new drugs, especially in oncology, to offset the decline in their product pipelines.

Under the proposed acquisition, Genentech will operate as an independent research and early development centre within Roche from its existing campus in South San Francisco, CA, retaining its expertise and approach to discovering and progressing new molecules. The structure of the combined company will allow for a diversity of approaches in research and early development, while also strengthening cross fertilisation between the companies, leading to enhanced overall innovation within the Group. Roche's recently-adopted Disease Biology Area approach, which allows five diverse groups to manage their innovative portfolios, will be maintained and strengthened. This, together with recent moves into RNAi and delivery technologies, as well as licensing activities, continues to provide a stimulating environment for the creation of medically-differentiated medicines.

Roche's Pharma commercial operations in the US will be moved from Nutley to Genentech's site in South San Francisco, CA. The existing US sales organisations of both companies will be maintained, resulting in a very strong presence in several specialty areas. The combined entity will be the seventh largest US pharmaceuticals company in terms of market share. It will generate more than US$15 billion in annual revenues and will employ around 17,500 pharma employees in the US alone, including a combined sales force of approximately 3,000 people. Including diagnostics, the Roche Group will employ around 25,000 people in the US.

With various clinical trial results expected in the next 18 months, analysts expect that Genentech's share price could soar on the back of positive data. Genentech's Avastin (bevacizumab) is in clinical testing as a secondary treatment for colon and breast cancer, and Rituxan (rituximab) is being investigated as a possible lupus treatment. Some experts believe that positive outcomes could bring Genentech an additional US$5 billion in peak sales for Avastin alone. The ultimate goal, however, would be to pair Genentech's therapeutics with Roche’s diagnostics to inform physicians which patients can benefit from specific treatments. The move looks like a smart one for both parties.

Matthew Dennis - Editor, Cancer Drug News