Genentech's great deal

Roche will finally buy Genentech (DNA) after months of fighting over a price for the acquisition. According to The Wall Street Journal (subscription required), "Swiss drug maker Roche Holding AG said Thursday it has agreed with Genentech Inc. to buy the 44 percent of the U.S. biotech company that it doesn't already own for around $46.8 billion."

The amount is not what Genentech wanted, which was over $100 a share. But the final price was close to $95. Before the first offer from Roche, the U.S. company's stock was only $75.

The fact that Roche raised its bid to a much higher level during a recession is telling. Traditional drug makers are faced with expiring patent protection on a large number of their older drugs. That brings competition from lower-priced generics. The costs of R&D to replace these products is high, and there is no guarantee that new "blockbuster" drugs can be created and taken through the regulatory approval process.

Genentech, one of the largest biotech companies in the world, is part of the next generation of drug treatment creators. Its process for developing new drugs is different from those of the Big Pharma firms and Genentech has products that are new and less likely to be replicated easily. The large pharma firms will pay up for successful rivals because it is the best way for them to stay viable.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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