"In considering Genentech's potential frame of reference for assessing valuation in an acquisition and formulating a counter proposal, we would suggest that a comparable 30x 2009E EPS multiple to large-cap peer Celgene would support a $120 (-per-share) purchase price, that a more typical 35-60% 30-day premium seen in other acquisitions would support a $104-123 purchase price, that a 50-100% premium to our PharmaPipelines NPV of $70 could support a purchase price of $105-140 and that a comparable 10.7x sales multiple afforded MedImmune by AstraZeneca could support a purchase price of $131," the firm said in a note to clients.

"Overall, we believe that $120/share would be a reasonable counter proposal by DNA and that assuming an equitable negotiation would suggest a compromise price of $105/share, in line with a 50% premium to our PharmaPipelines NPV."

The End of an Era

Roche is saying that it will allow Genentech to operate as an independent entity with minimal interference from headquarters in Basel. In fact, Roche's presence in the U.S. will be rebranded under the Genentech name. (A smart move.) Still, will Genentech, under Roche, be given free rein to continue working with its smaller, biotech partners?

What happens to the drug development partnerships with Curis ( CRIS), Immunogen ( IMGN) and Seattle Genetics ( SGEN), for example?

If Roche is true to its word, Genentech will be free to pursue its early-stage drug development with the same freedom it has today, which bodes well for the existing partnerships, hopefully.

Genentech makes up 39% of the assets in the Biotech HOLDRs ( BBH) exchange-traded fund. What happens when Genentech disappears as a separate, publicly traded company.

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