Roche signals U-turn with Genentech offer
Pharmaceutical giant Roche has ended its policy of granting autonomy to biotech partners by launching a $43.7 billion (SFr44.7 billion) takeover bid for Genentech.
Roche, which already owns 55.9 per cent of the United States drug maker, said on Monday it was offering $89 per share for the remaining stock. It is the largest takeover bid by a Swiss concern.
Roche said the two companies combined would represent the seventh largest US pharmaceutical company in terms of market share.
“Roche’s significant investment in Genentech over many years has helped it to focus on innovation and long-term projects, leading to some of the most important breakthroughs in the treatment of cancer and other life-threatening diseases, said Roche chairman Franz Humer said in a statement.
“The transaction will create a unique opportunity to evolve Roche’s hub-and-spoke model into a structure that allows us to strengthen the focus on innovation and accelerate the search for new solutions for unmet medical needs,” Humer added.
Roche and San Francisco-based Genentech have been partners since 1990. The alliance has been hailed as a pioneering research and development model that has given Genentech the independence to produce drugs for Roche’s pipeline.
Oncology the key
Genetech specialises in cancer treatments, including the blockbuster drug Avastin. Under the terms of the existing arrangement, Roche has first choice of drugs from the Genetech pipeline and pays royalties to the company’s minority shareholders.
Birgit Kulhoff, an analyst at Rahn and Bodmer bank, told swissinfo that she was surprised that Roche was trying to change the terms this successful alliance. But she added that the takeover bid fits Roche’s new strategy.
“Roche is shifting away from specialty pharmaceuticals into primary care and that requires bigger clinical studies which can be a costly exercise. The cost savings Roche can make in this area will help their profit margins and earnings per share [EPS] growth,” she said.
“The current growth is in oncology drugs and Roche would have to pay an increasing share to Genentech’s minority shareholders under the present arrangements.”
Roche chief executive Severin Schwan was at pains to stress that Genentech would retain its autonomy if the takeover goes ahead.
“The Genentech Founders Research Center will operate as an independent unit within the Roche Group to safeguard a diversity of different approaches and to foster the long term flow of novel breakthrough medicines,” he said in a statement.
Calculated gamble
But Kulhoff believes that Roche will have to increase their offer to take into account continued earnings from Avastin.
She added that Roche is taking a calculated gamble that cost benefits will outweigh any negative impact from the proposed full merger.
“The integration process comes with the increasing likelihood of losing talent,” she said.
Roche said its offer was 8.8 per cent above the Genentech share closing price on Friday and 19 per cent above the price a month ago.
The Basel-based company believes the deal will save it between $750 million and $850 million in pre-tax synergies annually.
swissinfo, Matthew Allen
Roche, which was founded in 1896 in Basel, has core businesses in pharmaceuticals and diagnostics.
The group is the number one in the global diagnostics markets and is a leading supplier of medicines for cancer and transplantation.
Roche reported a profit of SFr11.4 billion ($10.44 billion) for 2007, beating analysts’ expectations.
Profit was up 25 per cent on the preceding year. Turnover also grew ten per cent to SFr46.1 billion – the seventh consecutive year of double-digit growth.
Founded in 1976, San Francisco-based Genentech is today one of the world’s leading biotech companies.
The company specialises in oncology, immunology and tissue growth and repair treatments. It includes cancer drugs Avastin and Herceptin among its biggest selling products.
Genentech teamed up with Roche in 1990 in a $2.1 billion merger. Roche holds 55.9% of Genentech’s shares, giving the biotech company freedom to innovate.
In 2008, it was names as one of the 100 best companies to work for by Fortune magazine for the 10th year in a row.
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