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Genentech Investments Affected by Down Market

Written by on Friday, October 31st, 2008 Print This Post Print This Post

The recent plunge in the stock market is not just affecting the investments of the average investor–it is apparently also affecting the investment portfolios of some biotech and pharmaceutical companies such as Genentech, reported the San Francisco Business Times.

According to the San Francisco Business Times, Genentech held preferred stock in Fannie Mae, Freddie Mac, and Lehman Brothers Holdings, and had to take a $67 million third quarter charge for these investments. Genentech’s investment income for the year will reportedly be 50% of what it was in 2007, which was $197 million.

The San Francisco Business Times reports that other biotech and pharmaceutical companies which have been affected by investment losses include Biogen Idec. Inc. and Lexicon Pharmaceuticals, Inc.

While most in the industry would expect that biotech stock prices would be affected by a plunging stock market, it may very well come as a surprise to many to discover that any of these biotech and pharmaceutical companies are so heavily invested in the market themselves.  The San Francisco Business Times article explains that cash-rich companies like Genentech are invested largely in short-term investments due to the high cost of drug development and the need to manage all the cash that is required for the drug development effort.

Upon reading this article, the question comes to mind: how, if at all, will the drop in Genentech’s investment portfolio affect Roche’s acquisition talks with Genentech?  Could a drop in cash on hand could make a new acquisition offer more attractive to Genentech?

In my opinion, the industry expectation is that there will at some point be a Roche acquisition of Genentech, so perhaps this market downturn will not have much of an impact on any deal.  At the same time, it seems likely that Genentech’s investment losses will have some impact on how the talks progress, as a 50% portfolio loss is certainly not inconsequential to any investor–even Genentech.

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