Roche plans to buy Syntex for $5.3 billion

May 03, 1994|By Los Angeles Times

Syntex Corp., a pioneering Silicon Valley company that lately has fallen on hard times, has agreed to be acquired by Switzerland's Roche Holdings Ltd. in a $5.3 billion deal that would create the world's fourth-largest drug company.

The merger, one of the largest ever between drugmakers, comes as the pharmaceutical industry attempts to cope with health reform and intense pressure from government, health maintenance organizations and hospital groups to cut prices. The deal also offers the clearest evidence yet of the dilemma faced by Syntex and other big drug makers when once-lucrative patents on their products expire.

Last December, Syntex lost U.S. patent protection on its flagship products -- the prescription painkillers Naprosyn and Anaprox -- and the Palo Alto, Calif.-based company was besieged by competing generic versions that were priced as much as 80 percent lower than the brand-name drugs. While the lower generic prices have been good news for consumers, Syntex's sales have been hammered.

Analysts said the prospect of health reform and a rapid decline in painkiller sales forced Syntex to give up its independence and seek a bigger partner. Roche, a $9 billion-a-year company with headquarters in Basel, Switzerland, is more than four times Syntex's size.

"They couldn't have survived in a very highly competitive health care market by themselves," said Arvind Desai, an analyst with Mehta & Isaly in New York.

Syntex Chairman Paul Freiman said his company sought a partner because of the "speed of changes in the industry and a radically different competitive situation."

Max Gurtner, a Roche spokesman, said Roche was interested in Syntex for several reasons. Syntex has several "innovative" drugs under development and its products complement Roche's offerings.

Moreover, by creating a larger company with a broader product line, Roche hopes to gain more negotiating clout with the HMOs and hospital groups that are wielding growing influence on drug-purchasing decisions, he said.

"We look at such investments with a very long-term eye," Mr. Gurtner said.

In response to the Roche offer, Syntex shares rocketed $8.25, to $23.50, on the New York Stock Exchange. But the stock remains far below its peak of $54 early in 1992, at the zenith of the drug industry's popularity on Wall Street.

Analysts said the deal is likely to fuel more consolidation in the $65 billion-a-year drug industry. The prices of such drug stocks as Eli Lilly & Co., Merck & Co. and Upjohn Co. also rose in heavy trading, as speculators tried to pick the next takeover target.

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