Swiss Drug Firm Buys Majority of Genentech Stock : Biotechnology: Analysts say the marriage will bring new capital to Genentech and provide a wealth of products for Hoffmann-La Roche.

By MARTHA GROVES

Feb. 3, 1990 12 AM PT

TIMES STAFF WRITER

SOUTH SAN FRANCISCO —

The Swiss owner of pharmaceutical giant F. Hoffmann-La Roche & Co. surprised the health-care industry Friday with an agreement to invest $2.1 billion in Genentech and obtain a 60% stake in the pioneering biotechnology firm.

Industry observers embraced the deal as a savvy move for both companies that could prove to be a model for others.

It provides the Swiss concern, Roche Holding Ltd., access to a large pipeline of biotech products and a sizable U.S. sales force. It also will mean deep-pocket support for Genentech as it pursues the costly process of developing products and getting them to market in the United States and overseas.

At a midday news briefing at Genentech’s 30-acre bayside headquarters complex in South San Francisco, officials of both companies emphasized that Genentech will continue to operate as an independent, publicly traded company, without interference from the Swiss investor.

“I think part of the culture of Genentech is a very special environment of entrepreneurs,” said Fritz Gerber, chairman and chief executive of Roche. “We’d be the last ones to kill that spirit.”

Robert A. Swanson, who founded Genentech at the age of 29 in 1976 and now serves as its chief executive, praised the arrangement, saying it “gives us the resources to accomplish the dream of biotech” without having to be concerned about Wall Street demands for high quarterly profits.

Swanson has recently been at odds with shareholders over the company’s mediocre stock performance. Once a sizzling high-flyer on Wall Street, the company has been slow to realize success with a key drug for heart attack victims: tissue plasminogen activator, marketed as Activase. As a result, its share price has wallowed in the $20 range after plummeting from a high of more than $60 in 1987.

Genentech two weeks ago reported a turnaround for its fourth quarter, showing a $15-million profit on $111 million in sales after having shown a loss of $15 million on $89.5 million in sales in the same period the year before.

Swanson, whose hands-on management style has come under fire, was named chairman. G. Kirk Raab, who had been president and chief operating officer, was appointed president and chief executive.

Despite its stock price troubles, Genentech is regarded as the leader in the young biotechnology industry. It also markets a highly successful human growth hormone for treating children with pituitary dwarfism.

Other products developed by Genentech are human insulin and alphainterferon, a natural substance thought to have cancer-fighting properties. Roche markets that product under an earlier agreement.

Roche specializes in pharmaceutical development and the manufacture of vitamins and chemicals. It posted worldwide sales last year of $6.5 billion. Hoffmann-La Roche is its U.S. pharmaceuticals and chemicals operation.

Denise Gilbert, a health-care analyst with Montgomery Securities, a San Francisco brokerage firm, said the cash infusion will afford Genentech the opportunity for “substantial expansion and acceleration” of laboratory and marketing efforts.

“The big drug companies need to get into the biotech business,” noted Michael Murphy, editor of the California Technology Stock Letter in San Francisco.

Observers said the deal could prove to be a model for other arrangements between biotech and pharmaceutical companies, whose industry has recently experienced a wave of consolidation.

Products of biotechnology generally are substances found in minute amounts in human beings that are reproduced through gene splicing or genetic engineering techniques, whereas pharmaceutical drugs are usually chemical compounds.

Under the agreement approved Friday by Genentech’s board of directors, Roche Holding, based in Basel, Switzerland, will invest $492 million in cash in Genentech, receiving in exchange about 22 million newly issued shares.

In addition, it will buy half of the company’s outstanding stock at $36 a share in cash--a price 65% higher than the closing stock price Thursday. In trading on the New York Stock Exchange Friday, Genentech shares rose $8.125 to close at $29.875. The remaining half, 44 million shares, will be converted into a new type of common stock that Roche will have the option to buy over the next five years. The combined purchases will give Roche 60% ownership.

Despite its majority ownership, the Swiss company will have only two members on the board of directors, which will expand to 13 from 11.

Beyond its initial 60% stake, Roche will be entitled to buy an additional 15% of Genentech stock on the open market. It would be held to that 75% ownership level unless it chooses by June 30, 1995, to buy the rest of the company all at once.

The deal, structured as a merger, will be put to a vote of Genentech shareholders at a meeting planned for late April. Company officials said that 1,200 employees cheered the announcement at a meeting Friday. About 82% of employees own Genentech stock.

GENENTECH AT A GLANCE

Revenue in millions of dollars

83: $42

84: $66

85: $82

86: $127

87: $219

88: $323

89: $400

Net income(loss) in millions of dollars

83: $1

84: $3