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Roche to Buy Genentech for $46.8 Billion

by Lynn Shapiro, Writer | March 12, 2009
Finally finality
Genentech has agreed to be acquired by Roche for $95 a share, or $46.8 billion, ending a drawn out battle for the biotech company, which began last summer, when Genentech rebuffed Roche's $89 a share offer.

In January, Roche lowered its offer to $86.50 a share, a bid that Genentech holders called "hostile." Genentech believed the company was worth $112 a share.

Genentech's change of heart came less than a week after Roche upped its bid last Friday to $95, so it could buy the 44 percent of Genentech it doesn't already own.

Roche bought approximately 56 percent of Genentech in 1990, when the biotech firm, founded in 1976, still needed suitors to help finance its research in a myriad of specialties. For example, it had won approval for its human growth hormone for children with dwarfism; for its human insulin for diabetics and for other DNA-based medicines, but still had not found a highly profitable niche.

Since then, Genentech has become a leader in biotechnology and cancer therapy, with blockbusters like Avastin and Herceptin and a promising pipeline of drugs both for cancer and other diseases expected to hit the market in the coming months and years.

Currently, Roche needs Genentech more than Genentech needs Roche. Roche's exclusive license to sell Genentech's drugs outside the U.S. ends in 2015. At that point, the Swiss company would lose billions of dollars in revenue, had it not acquired 100 percent of Genentech by that year.

Roche reportedly upped its bid last week because it is eager to clinch a deal before FDA decides in April whether to approve Gententech's best-selling cancer drug, Avastin, for early-stage colon cancer. If the drug wins approval, as is expected, Genentech's stock, now trading at $94, would soar to $100, analysts say, forcing Roche to up the ante on its bid. The new indication would give the combined company a large, new market for the drug. Avastin is now approved for metastatic or locally advanced cancers of the colon, breast and lung.

Roche to Preserve Genentech's Culture

Roche could have forced a merger at a lower price, analysts say, but didn't want to alienate Genentech's prolific team of researchers. Roche said Thursday research and early development would operate "as an independent center within Roche from Genentech's existing base in South San Francisco, retaining its talent and approach to discovering and progressing new molecules."

Roche said in a statement that the combined company would be the seventh-largest American drug maker by market share, generating about $17 billion a year in revenue. It will employ about 17,500 employees in the United States alone, including a combined sales force of approximately 3,000 people.

In another biotechnology deal, Gilead Sciences said Thursday that it would buy a rival CV Therapeutics for about $1.4 billion, or $20 a share in cash.