Genentech Trades Above Roche Offer

123jump.com Staff
21 Jul, 2008
New York City

Roche offered to acquire 44% of Genentech that it does not own at $89 per share, nearly 9% above Friday closing price. Roche will raise cash through debt offering and from internal resources to pay for Genentech and keep the company as independent research operation. Roche, struggling with new product development has acquires several smaller research companies in the past to keep its pipeline of new drug offering active. Roche fell 4% and Genentech closed up 15% near $94.

[R]5:00PM New York - Roche Holdings AG offers to buy U.S biotech firm, Genentech for $43.7 billion. Investors bid stocks higher in expectations of revised offer.[/R]

Roche Holdings AG, the world's biggest maker of cancer drugs, on Monday offered to buy 44% outstanding shares in its U.S partner Genentech for $43.7 billion that it does not own. Genentech will operate as an independent research and early development center from San Francisco, California and New Jersey locations.

The Swiss maker of the antiviral drug Tamiflu - acquired a majority stake in Genentech in 1990 and currently owns 55.9% of its entire issued capital.

Roche offered $89 per share to snap up the outstanding equity at 8.8% premium to Genentech's Friday closing share price.

Other Genentech majority shareholders and an independent panel of directors appointed by the company may have to approve the deal.

Roche chief executive Severin Schwan said the transaction would unlock additional value for shareholders in lower operating costs.

""We will be better able to share technologies and expertise in pharmaceuticals and diagnostics across the group and broaden the mutual access to the external innovation networks of both companies,"" said Schwan.

The company will raise up to $35 billion in loans and $10 billion of its own cash for the Genentech purchase.

Roche says that if Genentech shareholders approve Roche's approach then the move will deliver annual pre-tax savings of between $750 million to $850 million.

Under the deal, Roche is expected to gain increased access of Genentech's medicines, particularly the trademark cancer drugs Avastin, Herceptin and Rituxan.

First Half Profit Decline

Roche's first-half net profit fell 2% to Sfr 5.73 billion from Sfr 5.86 billion francs a year earlier, outperforming analysts' forecast.

Roche in today’s trading fell 4% or Sfr 8.90 to Sfr 186.10 , with the firm saying that double-digit growth of key products outweighed lower sales of Tamiflu. Tamiflu revenue fell 71% to 327 million francs as the U.S. government stopped stockpiling the drug. Roche expects a high single-digit sales increase this year.

Franz Humer, chairman of the board of Roche, said: ""Combining the strengths of Roche and Genentech will create significant value and result in benefits for patients, employees and shareholders.""

Shares of Genentech closed at the high of the day with a gain of 14% to $93.88 in New York trading, surpassing $89 per share offer from Roche. Genentech stock traded as high as $94.19 in the past year and traded as low as $65.35.

For the second quarter, Genentech reported $3.2 billion in sales, up from $3 billion a year ago and net income of 73 cents per share. The company also forecasted annual earnings of between $3.40 and $3.50 per share.

Genentech stock surged above the offer price as investors expect a higher bid from Roche. In Zurich trading, Roche shares fell 5% to Sfr 171 in later afternoon Zurich trading. Over the past 52 weeks, the stock has traded in the range of Sfr 162.700 and Sfr 219.50.

Roche paid 19% more than its original offer when it acquired Ventana Medical Systems, another U.S drug-maker earlier in the year.

It is important for the firm ""to have a stronger and more effective market presence, if we are to not only maintain but extend our position in the face of growing challenges and pressure on prices,"" Humer said.

There has been heightened activity in the pharmaceutical industry in recent years, as investors take refuge from losses in financial and consumer driven companies caught up in the credit squeeze. But the drug industry has also come under strain from regulated pricing and limited market access on major drugs.

Competitors, Novartis AG's bought out research partner Speedel while U.K's GlaxoSmithKline concluded a licensing with Actelion.

Roche develops and manufactures pharmaceutical and diagnostic products. The company produces prescription drugs in the areas of cardiovascular, infectious, autoimmune, and respiratory diseases, dermatology, metabolic disorders, oncology, transplantation, and the central nervous system.