[Ip-health] NYT: Roche Offers to Buy Out Genetech

[Eleanor Blume]

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http://www.nytimes.com/reuters/business/business-roche.html?hp


New York Times: July 21, 2008
* Roche Offers to Buy Out Genentech*

BASEL, Switzerland (Reuters) - Swiss drugmaker Roche Holding AG <ROG.VX>
offered to acquire all outstanding shares in its U.S. partner
Genentech Inc<http://topics.nytimes.com/top/news/business/companies/genentech_inc/index.html?inline=nyt-org><DNA.N>
for $43.7 billion in cash to reinforce its position in
cancer<http://health.nytimes.com/health/guides/disease/cancer/overview.html?inline=nyt-classifier>medicines.

Roche, which already owns 55.9 percent of Genentech, said on Monday it would
offer $89 per share to buy up the remaining stake, a 9 percent premium to
the biotech company's closing share price on Friday.

Basel-based Roche also said its first-half net profit fell 2 percent to 5.73
billion Swiss francs ($5.62 billion), hit by loss of sales of
influenza<http://health.nytimes.com/health/guides/disease/the-flu/overview.html?inline=nyt-classifier>drug
Tamiflu and the weak U.S. dollar, but beating forecasts.

Roche stock fell 2.8 percent to 174.50 francs by 0702 GMT (3:02 a.m. EDT) as
investors worried about the cost of the Genentech move, though analysts
welcomed the strategic rationale and access to interesting assets.

"The takeover of the innovate oncology powerhouse could really pay off for
the Basel company in the mid-term. The timings looks opportune given the
current low U.S. dollar," Wegelin analysts said in a note.

The Genentech bid is the latest in a string of acquisitions of promising
biotech assets as large pharmaceutical companies snap up interesting new
drugs to fill sparse new product pipelines.

Roche would gain control of all revenues for big-selling Genentech cancer
drugs Avastin<http://topics.nytimes.com/top/news/health/diseasesconditionsandhealthtopics/avastin_drug/index.html?inline=nyt-classifier>and
Herceptin, as well as absorbing an attractive portfolio of new
medicines.

CASH PILE

But trades said the 9 percent premium offered by Roche looks low. It
compares with an average of 63 percent for recent pharmaceutical buys of
biotech companies, according to Credit
Suisse<http://topics.nytimes.com/top/news/business/companies/credit_suisse_group/index.html?inline=nyt-org>
.

Roche expects the combination to generate annual pretax cost synergy
benefits of about $750-$850 million and to be add to earnings per share in
the first year after closing.

The company confirmed its full-year forecast and said it was still committed
to increasing its dividend pay-out ratio for the next three years.

It will fund the purchase partly from its large cash pile and Chief
Financial Officer Erich Hunziker said Roche was talking to several banks and
saw no problems in putting together "attractive" financing for the deal.

Roche did not give further details of how it will fund the buy or how it
would achieve the expected synergies.

PROFIT FALLS, BUT BEATS FORECAST

Big pharmaceutical companies have benefited in recent weeks from safe-haven
status as investors flee embattled sectors such as financials, but they
still face problems in their own businesses as competition from generic
drugs increases and are ever keener to get their hands on promising new
medicines.

Many pharmaceuticals<http://topics.nytimes.com/top/news/health/diseasesconditionsandhealthtopics/drugspharmaceuticals/index.html?inline=nyt-classifier>makers,
including Europe's two largest GlaxoSmithKline
Plc<http://topics.nytimes.com/top/news/business/companies/glaxosmithkline_plc/index.html?inline=nyt-org><GSK.L>
and
Sanofi-Aventis<http://topics.nytimes.com/top/news/business/companies/sanofi_aventis/index.html?inline=nyt-org>SA
<
SASY.PA>, face slowing earnings growth due to the loss of exclusivity on key
drugs, pricing pressures and more complicated paths to market.

Roche and its local rival
Novartis<http://topics.nytimes.com/top/news/business/companies/novartis_ag/index.html?inline=nyt-org>AG
<NOVN.VX> both trade at almost 14 times forecast 2009 earnings, a
premium
to competitors Glaxo, Sanofi and AstraZeneca
Plc<http://topics.nytimes.com/top/news/business/companies/astrazeneca_plc/index.html?inline=nyt-org><AZN.L>
thanks to their promising new drugs.

Roche's first-half sales fell 4 percent to 22.0 billion francs, hit by loss
of income from government stockpiling of Tamiflu. Its total drug sales fell
6 percent to 17.28 billion francs.

Roche had been expected to post net profit of 5.57 billion francs and sales
of 22.04 billion, according to a Reuters poll.

"The numbers are OK, but not outstanding. It's not enough to warrant a
premium to the sector," a trader said.

(Additional reporting by Rupert Pretterklieber and Paul Arnold in Zurich;
Editing by Quentin Bryar and David Cowell)