By Dermot Doherty
July 21 (Bloomberg) -- Roche Holding AG, Switzerland's largest drugmaker, offered to buy the rest of Genentech Inc. for $43.7 billion to gain the largest U.S. maker of cancer medicines.
Investors in South San Francisco, California-based Genentech would get $89 a share in cash, 8.8 percent more than the July 18 closing price, Roche said today in an e-mailed statement. The Basel, Switzerland-based company already owns 56 percent of Genentech and markets many of its treatments.
Roche today reported a decline in first-half profit as sales of the Tamiflu pill fell after governments and companies built up sufficient stockpiles of the medicine, one of only two drugs available to treat pandemic influenza. Genentech, the world's second-biggest biotechnology company, has provided Roche with its best-selling Rituxan, Avastin and Herceptin cancer therapies. The U.S. company raised its 2008 forecast last week as Avastin gained from the new use in breast cancer.
``Strategically it doesn't change the big picture very much since Roche is already a majority shareholder,'' Romain Pasche, a fund manager at Vontobel Asset Management in Zurich, said before the announcement. ``The risk is that Genentech loses its independence and becomes less productive on the research and development front.''
First-half net income fell to 5.73 billion Swiss francs ($5.58 billion) from 5.86 billion francs a year earlier, Roche said today in a separate statement. Analysts surveyed by Bloomberg had a median net income estimate of 5.55 billion francs. Roche doesn't report quarterly earnings. Group sales decreased 3.6 percent in the first half to 22 billion francs. Revenue from Tamiflu declined 71 percent to 327 million francs.
Outlook
Roche confirmed its outlook for an increase of almost 10 percent for group sales, with above-market rate growth in both its pharmaceuticals and diagnostics divisions. The forecast excludes sales of Tamiflu to governments and corporations. Roche said it expects core earnings per share to remain at least in line with the record level achieved in 2007.
The Genentech purchase would result in pretax savings of $750 million to $850 million a year and would add to EPS in the first year after closing, Roche said.
The Genentech board of directors is likely to establish an independent committee to review the offer, Roche said. Genentech board members who are employees of Roche won't participate in the evaluation of the proposal.
Roche rose 1.6 percent to 179.60 Swiss francs on July 18 in Zurich trading. The shares have declined 8.2 percent this year, outperforming the Bloomberg Europe Pharmaceutical Index of 19 companies, which has declined 12 percent. Genentech rose 0.8 percent to $81.82 July 18, and has gained 22 percent this year.
Best-Selling Drugs
Genentech, the world's second-biggest biotechnology company, has provided Roche with its best-selling Rituxan, Avastin and Herceptin cancer therapies. The U.S. company raised its 2008 forecast last week as Avastin gained from the new use in breast cancer.
On July 14, Genentech said second-quarter profit rose 4.7 percent and revenue increased 8 percent to $3.2 billion, led by U.S. sales of Avastin. The medicine, first approved in 2004 for colon cancer and for lung malignancies two years later, is being studied against 20 tumor types worldwide.
Avastin sales in the U.S. rose 15 percent to $650 million, about $7 million more than analysts had projected. Rituxan, a treatment for non-Hodgkin's lymphoma and rheumatoid arthritis that Genentech markets with Cambridge, Massachusetts-based Biogen Idec Inc., generated $651 million, a 12 percent increase. Sales of Tarceva, used to treat lung and pancreatic cancers, gained 17 percent to $119 million.
Profit Increase
Genentech said 2008 profit, excluding certain costs, will be $3.40 to $3.50 a share, up from a prior forecast of $3.35 to $3.45. The company is world's second-biggest biotechnology company in sales after Amgen Inc., which is based in Thousand Oaks, California.
Genentech won clearance from U.S. regulators to market Avastin for the three-fourths of women who don't have a gene mutation that raises their risk of invasive breast cancer. The added approval should boost Avastin's worldwide sales to $4 billion by 2011, said Maged Shenouda, an analyst with UBS in New York, in a note. Avastin generated $2.3 billion last year.
To contact the reporter on this story: Dermot Doherty in Geneva at ddoherty9@bloomberg.net
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