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Pharma's Market

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Nov.25

4:57 PM ET

Tuesday, 25 Nov 2008

Genentech: Roche Says One Thing, Investors Say Another

Posted By:Mike Huckman

Topics:Stock Market | Mergers & Acquisitions | Pharmaceuticals

Sectors:Health Care Equipment and Services | Health Care | Pharmaceuticals

Companies:Genentech, Inc.

Genetech
AP
This morning the mining company BHP Billiton threw in the towel on its year-and-a-half long hostile attempt to buy its rival Rio Tinto. The company cited the global economy and commodity prices for the pullout.

On the heels of that announcement a reporter from Reuters apparently tried to move the story forward by reaching out to drugmaker Roche to see if it might follow suit. After all, it's the other proposed big corporate M&A deal that's still hanging in the balance.

Through a spokesman the company said it's still committed to what it had called a "negotiated settlement" for the rest of California biotech Genentech that it doesn't already own.

Roche originally offered $89 a share. Genentech [DNA Loading... () ] said that was too low. Since then both sides have been playing their hands very close to the vest. The dollar has gone up and the Swiss franc has gone down, so the value of the deal is already higher even if Roche didn't up the ante.

So, based on Roche's reaffirmation of its intentions you'd think shares of Genentech would go up. But you'd be wrong. Today DNA closed down 41 cents or half a percent. It is now trading $12.75 below Roche's original offer. Clearly, investors remain unconvinced that Roche can pull this off.

Memory selling to partner Roche for $50 million

In a recent interview, though, CNBC contributor and former Genentech Chief Operating Officer Myrtle Potter said Roche not only has good credit, but is also well-liked by the Swiss banks in the drugmaker's homeland. She thought the deal would eventually get done.

Roche waited months to do a similar, but much smaller takeover of Ventana Medical Systems, so it has shown it can be very patient. And today Roche paid lunch money for teeny tiny Memory Pharmaceuticals. It's buying MEMY for $50 million. The stock jumped 312 percent from 15 cents to 60 cents. Roche will have no trouble closing a $50 million acquisition. In the current credit environment, pulling off a $50 billion-plus deal is another matter.