Zacks_Analysts' Blog : Roche-Xenon Agree to Join Forces - Analyst Blog

Roche Holdings Ltd.’s (RHHBY) subsidiary, Genentech, and Xenon Pharmaceuticals Inc. recently announced a collaboration for the discovery and development of compounds and companion diagnostics for the treatment of pain.

According to the terms of the agreement, Genentech will have an exclusive license to compounds and a non-exclusive license to diagnostics from Xenon for the development and commercialization of products. In return Xenon will receive an undisclosed upfront payment and research funding.

Xenon is also eligible to receive up to $646 million in the form of research, development and commercialization milestone payments, for the products developed under the collaboration. Additionally, Xenon will receive royalties on the sale of these products.

We note that Roche has been busy acquiring companies and signing new deals. In the fourth quarter of 2011, the company acquired Anadys Pharmaceuticals Inc. for $230 million. We note that this acquisition augmented Roche’s hepatitis C virus (HCV) portfolio, with Anadys’ lead pipeline candidate -- setrobuvir (ANA598).

Moreover, in September 2011, the company entered into a worldwide agreement with Evotec AG (EVTCY) for the development and commercialization of the latter’s Alzheimer's disease (AD) candidate EVT 302. Under the agreement, Roche is responsible for all clinical development, manufacturing and commercialization activities of the candidate. The company plans to initiate proof of concept studies of EVT 302 in 2012.

Also, in July 2011, Roche and Merck & Co. Inc. (MRK) inked a worldwide non-exclusive agreement to market a triple combination therapy, which includes Merck’s Victrelis (boceprevir), peginterferon alfa and ribavirin for HCV. According to the agreement, Roche and Merck will work together worldwide and educate physicians and patients about HCV.

Although, in the short-term we have a Zacks #4 Rank (Sell rating) on Roche, we believe that these transactions will help add to the company’s portfolio, thereby driving long-term growth.