Roche sets sights on biotech giant.

Swiss drug giant Roche has made an unexpected move to buy Genentech, one of the biotechnology industry's oldestand mostsuccessful companies. Despite a recent spate of biotech acquistions by pharmaceutical firms, analysts say Roche's move does not signal a merging of the industries.

Roche acquired a majority stake in Genentech in 1990-a relationship that Franz Humer, Roche's chairman, says has resulted in one of the biggest success stories in the healthcare industry. Roche hopes to buy the 40.1% of the Genentech shares it does not already own for $89/ share. This amounts to $43.7bn and represents a premium of 19% over last month's share price.

A merging of the companies would boost innovation, according to Roche. Genentech would continue to operate as an independent research and early development centre, while key assets such as IP, technologies and partnerships could be shared. With Genentech already the size of a pharmaceutical company, Roche expects annual pre-tax savings from a merger of $750m-$850m from increased scale, less duplication and improved operational efficiency.

The acquisition would be one of a flurry of biotech purchase attempts by large pharma, many of which want to access new technologies and boost flagging pipelines in the face of looming patent expirations and increased generic competition. Bristol-Myers Squibb recently proposed acquiring ImClone Systems, while Sanofi Pasteur said it planned to buy its partner vaccine firm Acambis. Meanwhile, GlaxoSmithKline recently acquired Sirtris Pharmaceuticals (C&I 2008, 12, 6). Roche has also announced plans to buy RNA drug company Mirus Bio and antibody company Arisu Research.

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Ernst & Young's Ian Oliver expects to see more acquisitions of biotechs by big pharma. But he says the pharmaceutical industry in general is unlikely to swallow up the biotech industry because biotech innovation requires ah entrepreneurial environment. There is an opportunistic element to the current trend of acquisitions, he explains, as market caps are depressed by general economic circumstances and investors have moved away from riskier stocks.

However, the demand for partnering with biotech is increasing and should put late stage drug developers in a more powerful negotiating position, Oliver says. 'We believe the value equation of a drug through its development life will tip further in favour of the original innovation,' he explains.

Meanwhile, Genentech has formed a special committee of its board of directors and is considering Roche's proposal.