Does Roche have Genentech’s Rx?

Janet Babin Jul 21, 2008

Does Roche have Genentech’s Rx?

Janet Babin Jul 21, 2008


KAI RYSSDAL: In biotechnology, Genentech is the stuff of legend.
Thirty years ago the California start-up was among the first to use genetic engineering to make medicines. And make those medicines it did. Last year, the three best-selling cancer drugs in the this country all carried the Genentech label on them.

But today’s developments might mark the end of the start-up era in next-generation medicine. The Swiss pharmaceutical giant Roche wants to buy the 44 percent of Genentech it doesn’t already own. But Genentech’s not going to come as cheap as Roche is hoping — if the deal even goes down at all.

From the Marketplace Innovations Desk at North Carolina Public Radio, Janet Babin reports.

JANET BABIN: Roche offered $89 a share for Genentech’s stock. But that may not be enough. Analyst Jason Zhang at BMO Capital Markets says Roche may have to offer more than $100 a share if it really wants Genentech.

And there are there big reasons for Roche to really want it. According to IMS Health, Genentech’s top cancer drug had sales of over $2 billion last year.

Roche has the right to license any of Genentech’s new drugs. But that option expires in 2015. Also, Zhang says a full merger would be more efficient:

Jason Zhang: They could streamline a lot of the research and save cost.

But the savings will only accrue if Roche can keep the same culture of creativity that makes Genentech such a standout. The company gives its employees lots of independence.

Jay Markowitz is an analyst at T Rowe Price:

Jay Markowitz: The biggest concern about this transaction, should it go through, is how Roche would retain the tremendous people that has made it [Genentech] such a successful and innovative biotech company.

It seemed to work the first time Roche bought into Genentech. Editor David Hamilton at B-Net Industries says even though Roche owns 56 percent of Genentech, it doesn’t even hold a majority of board seats.

David Hamilton: They don’t tell Genentech what to do. Obviously, if they buy the whole company, that is quite likely to change.

Genentech will leave the fated decision to a board of independent directors.

I’m Janet Babin for Marketplace.

RYSSDAL: Just to finish today’s Marketplace pharmaceutical round-up . . . Schering-Plough reported earnings today — after the bell. Ordinarily I wouldn’t mention the timing. But the company pushed its report past the close so the market could absorb disheartening news about its cholesterol drug Vytorin. Apparently, it doesn’t work the way it’s supposed to — no better than a placebo in a big European study. Those earnings down, by the way, but still better than expected.

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