Genentech, Roche Clear Government Hurdle to Merger
Genentech and Roche Holding have agreed to three conditions placed on their merger by the Federal Trade Commission and will complete the $2.1-billion deal by next Friday.
The conditions are laid out in a consent decree that the companies and the FTC agreed to Friday.
Genentech, the South San Francisco-based biotechnology company, said it must divest its interest in GLC Associates, a partnership it had formed to develop a recombinant process for making vitamin C.
Roche, based in Basel, Switzerland, must sell off technology it has been developing related to human growth hormone releasing factor. It also must license to third parties its patent rights to CD4, an AIDS drug also under development.
Friday’s agreement with the FTC covered three technologies or products still in development stages, making it difficult to assess the order’s financial impact on the two companies.
Genentech hopes that the merger--in which Roche will acquire 60% of the company initially and rights to purchase the remainder within five years--will give it the deep pockets and global presence it needs to become the first entrepreneurial biotechnology company to enter the big leagues of pharmaceutical marketing.
Genentech said it was too early to predict what would happen to its 50% share of GLC, its joint venture with Lubrizol of Cleveland. GLC has no employees or revenue, and its only asset is its technology. The FTC apparently imposed the divestiture because Roche, through its subsidiaries, is a leader in the worldwide market for vitamin C.
In regard to the two Roche projects, the consent decree also addresses potential antitrust concerns, rather than current competitive conditions. Roche is still developing its growth hormone releasing factor, and it isn’t expected that it would compete with Genentech’s current growth hormone product in the one small market for which it is approved. There could be overlap in the future, however, because Genentech is exploring several different applications for its growth hormone.
The FTC also was concerned that each company was developing its own therapeutics for the CD4 portion of the AIDS virus. Genentech’s CD4 product already is in clinical human trials. Roche’s project--which it now must license to others for marketing--is a variant CD4 product that is still in early development.
The federal agency began reviewing the antitrust implications of the merger after it was announced last February. The FTC extended the review in March when it asked for additional information on the three areas covered in the consent decree. Negotiations between the agency and the companies continued until Friday, when trade commissioners voted to accept the agreement.
“We considered it to be well worth it to enter into the consent decree and complete the deal now,” said Jack Murphy, a Genentech spokesman.
The infusion of capital from Roche will leave Genentech with a cash balance of $600 million, and allow it to simultaneously fund several projects in development, said Murphy.
This gives Genentech an edge over other independent biotech companies that often must shortchange promising technologies to afford the high cost of getting another through the development and regulatory review process.
Genentech currently markets two genetically engineered products. Activase, its brand of tissue plasminogen activator, is used in treating heart attack patients. Protropin is used in treating children who suffer from growth hormone deficiency. The two products accounted for nearly 80% of the company’s $400 million in revenue last year.
Roche Holding is the parent of a large group of research-based health care companies. In 1989, it had sales of about $6.4 billion.
