The Coming Run on Biotech – Genentech is a 1st or 2nd Inning Play

[Editor addition – today (7.23.08) Roche announced another purchase – see HERE )

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Today, Roche Holding AG, a large Pharmaceutical company, announced that they will offer over $44 billion to buy out the remaining shares of Genentech – See Yahoo Finance Story Here. Many will look at the story and not think much more of it – but there is more.
An interesting development is unfolding, and has been unfolding for the past couple of years. Large, cash flow generating pharmaceutical companies have been seeing more and more of their prized drugs come off patent protection or, soon will be off patent protection.

Some companies, such as Merck and Schering Plough, are trying to combine off-patent drugs to create ‘patent-able’ new drugs (see this interesting article mentioning ZOCOR – HERE) (also there is an interesting company based near me in Cambridge, MA – ConbinatoRx – and all they do is combine existing drugs). Other companies are scrambling to find ways to replace big-selling drugs that will come off patent in the next few years (see this nice summary article of Pfizer’s issues with Lipitor).

One clear winner of all this “scrambling” is the biotechnology sector. Every company with a decent phase 2 drug candidate should be considered a takeover target. The big firms such as Merck and Pfizer, will certainly compete to buy the firms with the most promising drugs to replace their pipelines. This may create significant buyout premiums on these companies shares. It should be very exciting around here, since I live near many of these potential targets, who house themselves near MIT in Cambridge, MA.

Keep your eye out for all the excitement.

More reading on this topic:

Biotech Buyout Frenzy Continues…

Fierce Biotech

StraightStocks

Forbes Old Article

TheStreet.Com Old Article

Enjoy!

Chris Grande

7.20.08

Disclosure – as of the date of this article, I neither own nor control or have any interest in any company mentioned in this article. This article is not meant as investment advice and is purely commentary on biotech industry dynamics and I do not recommend you buy or avoid the shares of any of these companies.

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  • update – in this market, where cash is hard to come by, the acquiring companies might have regained the upper hand. Though biotech demand is still strong, the dynamics may have shifted for now…do your research!
    10.22.08