ANALYST: GENENTECH ACQUISITION OF TANOX MAKES FIRM A GOOD BET FOR INVESTORS

Genentech and Tanox announced last week plans for Genentech to acquire Tanox, a biotechnology company specializing in the discovery and development of biotherapeutics based on monoclonal antibody technology, for $20 per share for a total cash value of approximately $919 million.

Investors should consider buying Genentech stock, Lazard Capital Markets analyst Joel Sendek said in a Nov. 10 research note.

"The deal eliminates the royalty payments from Genentech to Tanox on U.S. Xolair sales, which we estimate at 812 percent," Sendek said. "Additionally, Genentech will now receive royalties on ex-U.S. sales of Xolair by Novartis. By our estimates, this amounts to approximately $40 million in incremental pretax operating revenue in 2007, with no incremental spend versus our previous estimates," he said.

Any risk related to the stock is because "Genentech's earnings growth is highly dependent on the continued success of recent product launches and its ability to operate near 100 percent capacity," Sendek said.