- The Washington Times - Friday, March 13, 2009

NEW YORK | Swiss pharmaceutical giant Roche agreed Thursday to pay $46.8 billion in cash to buy the 44 percent of California-based biotech pioneer Genentech that it doesn’t already own, ending a long corporate struggle between the companies.

The deal, which values the whole of Genentech at more than $100 billion, underscores the lengths drugmakers are willing to go to shore up weak pipelines of new drugs. And investors and the industry will be watching to see whether Roche can preserve the unique research culture that helped Genentech all but start the biotech industry.

The deal brings Roche, whose best-known products include the flu treatment Tamiflu and the tranquilizer Valium, all of the sales of Genentech’s highly profitable cancer drugs as well as its promising research pipeline and scientific corporate culture.

The deal, which is a tender offer approved by Genentech’s board, offers $95 per share for the 44 percent of South San Francisco-based Genentech Inc. that Basel-based Roche Holding AG doesn’t already own. A majority of shares besides Roche’s still must be tendered for the deal to be made, with a March 25 deadline in place.

It is the latest in a burst of megadeals among drugmakers, following Merck & Co. Inc.’s announcement Monday that it would acquire Schering-Plough Corp. and Pfizer Inc.’s pending acquisition of Wyeth.

A dearth of new products and push for cost savings are driving the rush to combine. The deal values Genentech as a whole at $100.1 billion when including the portion of the company already owned by Roche. That nearly matches the $109.1 billion combined total for Merck’s and Pfizer’s acquisitions.

Roche expects to save $750 million to $850 million per year by eliminating duplication but has not yet given a figure for potential job cuts.

The agreement ends Roche’s hostile bid for Genentech. Genentech’s board rejected Roche’s initial friendly bid of $89 per share in July. Roche then surprised the company and Wall Street with a lowered $86.50-per-share bid Jan. 30, aimed directly at shareholders.

The Swiss drugmaker then increased that bid to $93 per share last Friday. Roche recently said it raised $36 billion in financing and can obtain the rest through debt or with available cash.

Hanging over the negotiations have been study data expected to be released in April on the effectiveness of Genentech’s Avastin in treating early-stage colon cancer. The drug, Genentech’s best-selling product, is already approved for breast, lung and colon cancers.

Avastin is one of the best-selling biotechnology drugs in the world. Like other biotech drugs, it is made using living cells. The process, though, is more complicated and often more costly than traditional chemical drugs, which makes biotech drugs more expensive. Avastin, for example, can cost about $50,000 per year.

With the government looking to help control prescription drug prices, consolidation could turn out to be a good thing for the industry, said Morningstar equity analyst Damien Conover. The move allows for sales force and other cuts, which could help maintain margins if drug prices decreased, he said.

Plans call for research and early development to operate as an independent center within Roche from Genentech’s campus in South San Francisco.

Roche shares closed 1.1 percent higher at $126.80 on the Zurich exchange. Genentech shares rose $1.75 to $93.92.

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