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News that Roche has secured 96% of Genentech’s shares effectively brings formal closure to an eight-month long saga with more twists and turns than a mountain alpine path in Roche's home country.
The $46.8bn acquisition will cement Roche’s position as the industry’s powerhouse within the oncology field and in stark contrast to recent mega-mergers, this deal appears to have the potential to add to shareholder value. Roche’s revised enterprise value is now estimated at $145bn which compares favourably with a total product NPV of $149bn. This is a relatively low risk valuation because it is derived mainly from marketed products and still does not take into account the value of Roche’s diagnostics division or the bulk of either group’s R&D pipeline (see table below).
Put into historical context, the $46.8bn that Roche has paid for the 46% of Genentech shares it did not already own is the biggest deal the pharmaceutical industry has seen for five years, since Pfizer’s purchase of Pharmacia in 2004 for $63bn. However, both these deals are set to be surpassed later this year with Pfizer’s $68bn acquisition of Wyeth.
Value creation
Combining the net present values of Roche and Genentech’s products, using EvaluatePharma’s NPV Analyzer, reveals that not only will Avastin be the industry’s biggest-selling product in 2014 with worldwide sales of $11.2bn but the anti-cancer antibody is also worth a staggering $45.6bn to Roche, almost as much as the entire acquisition cost of Genentech.
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NPV Analysis for a combined Roche + Genentech company
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Market Status |
Product |
Generic Name |
Company |
Originator |
WW sales in 2014 ($m) |
Today's NPV ($m) |
NPV as % of total NPV |
| Marketed |
Avastin |
bevacizumab |
Genentech + Roche |
Genentech |
11,213 |
45,602 |
31% |
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Herceptin |
trastuzumab |
Genentech + Roche |
Genentech |
6,186 |
26,800 |
18% |
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Rituxan |
rituximab |
Genentech + Roche |
IDEC Pharmaceuticals
|
7,824 |
21,462 |
14% |
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Mircera |
methoxy polyethylene glycol-epoetin beta |
Roche |
Roche |
1,622 |
4,920 |
3% |
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Pegasys |
peginterferon alfa-2a |
Roche |
Roche |
1,316 |
4,385 |
3% |
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Tarceva |
erlotinib |
Genentech + Roche |
OSI Pharmaceuticals/Pfizer |
1,899 |
4,282 |
3% |
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Xeloda |
capecitabine |
Roche |
Roche |
1,004 |
3,878 |
3% |
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Lucentis |
ranibizumab |
Genentech |
Genentech |
1,090 |
3,864 |
3% |
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Pulmozyme |
dornase alfa |
Genentech + Roche |
Genentech |
623 |
2,924 |
2% |
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CellCept |
mycophenolate mofetil |
Roche |
Syntex |
542 |
2,836 |
2% |
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Other marketed products |
5,211 |
17,765 |
12% |
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| Approved |
Actemra |
tocilizumab |
Roche |
Chugai |
2,620 |
6,597 |
4% |
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Phase III |
Taspoglutide |
taspoglutide |
Roche |
Ipsen |
1,558 |
2,508 |
2% |
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PRO70769 (R1594)
|
ocrelizumab |
Roche |
IDEC Pharmaceuticals
|
355 |
996 |
1% |
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Omnitarg (R1273)
|
pertuzumab |
Roche |
Genentech |
48 |
205 |
0% |
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Total |
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43,111 |
149,024 |
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Genentech originated products
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19,937 |
82,683 |
55% |
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Roche originated products
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5,310 |
17,137 |
11% |
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Other products |
17,864 |
49,204 |
33% |
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Another of Genentech’s products, breast cancer antibody, Herceptin, is valued at $26.8bn on a combined basis, meaning that combined with Avastin these two products alone account for almost 50% of the new group’s total product NPV.
The above table also highlights the extent to which Genentech has created value for Roche, with 55% of the $149bn total product NPV directly attributable to Genentech’s products.
The scale of these potential cash flows are quite staggering, and are also likely to be bolstered further by tax savings once the significantly lower Swiss tax rate of around 25% is applied, compared to a US rate of 35%.
Although Roche will be required to use a significant portion of these cash flows to service the estimated $39bn in bonds it had to issue to finance the bulk of this deal, it is clear the acquisition of Genentech has the potential to add significant long-term value for Roche’s shareholders.
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