Did Roche pay too much for Genentech?

Roche and Genentech buildings

TEXT OF STORY

Kai Ryssdal: Roche closed on its acquisition of Genentech not too long ago. But today the Swiss pharmaceutical giant is probably wishing it could have a do-over. Roche was betting big that Genentech's cancer drug Avastin would be approved for a new application. But early results from a set of clinical trials show Avastin does not prevent the recurrence of colon cancer as everybody had hoped. From the Marketplace Innovations Desk at North Carolina Public Radio, Janet Babin has more now on what happens when a blockbuster drug fizzles.


JANET BABIN: Avastin is one of Roche's best-selling drugs. Its global sales are expected to reach about $6 billion this year. But if this clinical trial had gone better, sales could have doubled by 2011. Now they probably won't.

Analyst George Farmer at Canaccord Adams, says Avastin was a key reason why Roche paid $95-a-share for Genentech, Avastin's creator. Now, Farmer says Roche may have rushed the deal.

George Farmer: Near term it looks like they may have made a mistake, Roche probably overpaid for Genentech, but Genentech's a phenomenal company.

Last year, the three top-selling cancer drugs came out of Genentech.

There's been a flood of pharmaceutical mergers in recent months. The industry is trying to streamline costs to put more money into developing new drugs. But analyst Les Funtleyder with Miller Tabak says cutting costs doesn't always make that happen.

Les Funtleyder: In the past, mergers have not created value in pharmaceutical land. Because the more money you pour into R and D does not necessarily mean the more products you get out.

Roche pushed for the Genentech merger before the clinical trial results were released. Roche assumed the trial would go well, and it would have to pay even more for Genentech. Now analyst George Farmer says the poor outcome could affect future pharmaceutical mergers.

Farmer: Clearly they were taking on a lot of risk, and I don't think you're going to see those kinds of deals anymore.

But the Roche-Genentech deal may look more promising by June. That's when complete data from the Avastin trial will be revealed.

I'm Janet Babin for Marketplace.

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