What Now, Genentech Investors?

But Chan cautions that not all of the investment capital generated by Roche's buyout of Genentech will necessarily flow right back into biotech or health care. "Growth investors look for growth, and for some funds, that will mean looking outside of health care stocks," he says.

At current prices, Genentech makes up roughly 35% of the $277 billion in total market cap from the so-called "Big Six" profitable, large-cap biotech companies, which include Biogen Idec, Genzyme(GENZ Quote - Cramer on GENZ - Stock Picks) and Amgen(AMGN Quote - Cramer on AMGN - Stock Picks) as well as those mentioned above.

Genentech is the most widely held of the Big Six, so removing it from the list not only shrinks the sector considerably but also makes it less attractive to investors who owned Genentech because it was the "safe" way to gain biotech exposure.

"If the biotech sector's market cap shrinks by a big chunk, there is the possibility that general growth investors pay less attention to the sector," says a health care hedge fund manager.

Mike King, senior biotech analyst at Rodman & Renshaw, also sees potential downside for the sector if Genentech ceases to be, because selling large institutional investors on the idea that Celgene, Gilead Sciences or Amgen can fill Genentech's shoes as the sector leader is going to be a hard sell.

"It's going to be tough convincing generalists because no one but Genentech has the breadth and science and the know-how to translate science into breakthrough, blockbuster products," says King. Celgene, Gilead and the others are great companies, but they're more limited in scope, while Amgen is trying to diversify, but lacks the credibility of Genentech, he says.

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