Roche shares dip on $43.7bn offer for Genentech
The Swiss pharmaceutical company has been a majority shareholder in Genentech since 1990, holding 55.9 per cent of its outstanding stock. It has offered $89 per share for the remainder, a 9 per cent premium to Genentech’s closing share price on Friday (July 18).
It remains to be seen how Genentech’s management responds to the overture from Roche. The US firm could not be reached for comment by the time this article went to press.
The return of the ‘mega-merger’ that was such a feature of the pharmaceutical industry in the 1990s caused a few jitters among the investment community this morning, with Roche’s shares down nearly 3 per cent in early-morning trading.
Genentech has been a phenomenal source of new products for Roche over the last 10 years or so, providing big-selling biologics such as cancer drugs Rituxan (rituximab), Herceptin (trastuzumab) and Avastin (bevacizumab). For its part Roche provided the funding, marketing muscle and distribution channels that helped to make them blockbuster brands.
The big question for investors – and one possible factor behind the dip in share price - is clear. Will the innovative instinct that has served Genentech so well over the last 20 years be fostered and maintained once the huge task of integrating the two companies is completed?
Roche insists it will. A statement released by the Swiss drugmaker this morning emphasised that “Genentech’s unique research culture” would be maintained if the deal goes through. The biotech’s facility in South San Francisco would operate as an independent R&D unit and serve as the US headquarters for the combined company.
Innovation will be enhanced by “allowing for diversity of research approaches while also encouraging sharing of intellectual property, technologies, partnerships and other key assets,” according to Roche, which added that the takeover will also strengthen “cross-fertilisation” between the companies.
In a letter to Genentech’s independent directors made public this morning, Roche also notes how Genentech has “come to resemble a major pharmaceutical company,” and that there is “an opportunity to realize significant synergies by combining the two companies.”
Roche’s collaboration with Genentech has given it the financial power to make a bid for its biotech brother, and it plans to finance the cash merger by setting up a consortium of financial backers. The Swiss drugmaker also reported a first half net income of CHF 5.7bn this morning – a little above expectations. Sales were down 4 per cent to just over CHF 22bn, held back by currency factors and a slowdown in sales of flu drug Tamiflu (oseltamivir) which had been boosted in prior years by government stockpiling efforts.
Roche/Genentech would boast annual sales of more than $15bn, with the opportunity to cut costs by around $750m-$850m a year, according to Roche.
The new company would also employ around 25,000 people in the US, although for now it remains unclear how many of Genentech’s 10,000-plus employees will be retained.
Roche has said it plans to maintain both US sales organisations – a traditional area of cutbacks when two big players merge – but points to “substantial scale benefits, operational synergies and cost avoidance” in manufacturing and late-stage development. The Swiss major's manufacturing unit in Nutley is slated for closure.
"Roche expects to complete the transaction as soon as possible following negotiation of a definitive merger agreement," it said.
