Roche to spend $47 billion to take control of Genentech

NEW YORK - Swiss pharmaceutical giant Roche Holding Ltd. agreed yesterday to pay $46.8 billion in cash to buy the 44 percent of California biotech pioneer Genentech Inc. that it does not already own, ending a long corporate struggle between the companies.

The deal, which values the whole of Genentech at more than $100 billion, underscores the lengths to which drugmakers are willing to go to shore up weak pipelines of new drugs. And investors and the industry will be watching to see if Roche can preserve the unique research culture that helped Genentech all but start the biotech industry.

The $95-a-share deal brings Roche, whose best-known products include the flu treatment Tamiflu and the tranquilizer Valium, all of the sales of Genentech's highly profitable cancer drugs as well as its promising research pipeline and scientific corporate culture.

The deal, approved by Genentech's board, offers $95 a share for the part of the South San Francisco, Calif., company that Roche does not already own.

It is the latest in a burst of megadeals among drugmakers, following Merck & Co. Inc.'s announcement Monday that it would acquire Schering-Plough Corp. and Pfizer Inc.'s pending acquisition of Wyeth. Merck and Wyeth are based in central New Jersey and have major operations in the Philadelphia area.

A dearth of new products and push for cost savings are driving the combinations. The deal values Genentech as a whole at $100.1 billion. That nearly matches the $109.1 billion combined total for Merck's and Pfizer's acquisitions.

Roche expects to save $750 million to $850 million a year by eliminating duplication, but it has not yet given a figure for potential job cuts.

The agreement ends Roche's hostile bid for Genentech. Genentech's board rejected Roche's initial friendly bid of $89 a share in July. Roche then surprised the company and Wall Street with a lowered $86.50-a-share bid Jan. 30, aimed directly at shareholders.

The Swiss drugmaker then increased that bid to $93 a share last Friday.

With the government looking to help control prescription-drug prices, consolidation could turn out to be a good thing for the industry, said Morningstar Inc. equity analyst Damien Conover. The move allows for sales-force and other cuts, which could help maintain margins if drug prices decreased, he said.

"The other piece is, if you are bigger, you tend to have more negotiating power," he added.

Roche said the combined company would be the seventh-largest U.S. pharmaceutical company in terms of market share and would earn about $17 billion in annual revenue.

Roche said its Pharma commercial operations in the United States will move from Nutley, N.J., to Genentech's site in South San Francisco, which will become headquarters of the company's U.S. drug operations and operate under the Genentech name.