By Mary Welch

Genentech Inc. filed with the Securities and Exchange Common a registration statement indicating that Roche Holdings Inc., the controlling shareholder of F. Hoffmann-La Roche Ltd., will sell about 22 million shares of Genentech stock - worth about $3.4 billion - on the open market.

The sale, with the proceeds going directly back to the Basel, Switzerland-based Roche, will lessen the company's equity in Genentech from about 83 percent to about 65 percent. Roche also will grant the underwriters an option to purchase another 2 million shares to cover overallotments. The South San Francisco-based company had 128.3 million shares outstanding as of Sept. 30.

J.P. Morgan & Co., of New York will act as lead manager. Co-managers will include Goldman Sachs & Co.; Merrill Lynch & Co.; Warburg, Dillon, Read LLC; and BancBoston Robertson Stephens Inc., all of New York.

"This is a move to provide more access to our stock," said Genentech spokeswoman Marie Kennedy. "The float has been limited and this is a confirmation from Roche that we are running the company well."

Genentech's stock (NYSE:DNA) closed Friday at $158.50, down $14.312, or 8.2 percent.

Eric Schmidt, vice president of S.G. Cowen Securities Corp., of New York, attributed the downslide of the stock to the Roche announcement. "The sale will double the float to about 40 million shares," he said. "There's going to be some indigestion associated with that. One reason why the stock was valued so high was that it was hard to get your hands on it. It's supply and demand."

In addition, Roche will issue U.S. dollar denominated bonds exchangeable with Roche for up to about 5.5 million shares of Genentech common stock owned by Roche. Both offerings are dependent upon favorable market conditions.

On top of the Roche news, Genentech approved a 2 for 1 stock split in the form of a stock dividend. The record and distribution dates have not been determined.

In 1990 Roche invested $492 million in capital in Genentech and purchased half of the company's stock for $36 per share. As a result, Roche owned 60 percent of Genentech's stock.

In 1995, the merger was amended to extend another four years Roche's option to purchase the remaining common stock, at a new purchase price of $82 per share. That option ended June 30, 1999. However, Roche didn't wait until the final deadline. In early June, it exercised its call option for the remaining 33 percent of Genentech's common stock for about $4.2 billion. (See BioWorld Today, June 4, 1999, p. 1.)

The action left Genentech as an independent, publicly traded company. After the redemption was completed, Roche sold 22 percent of its Genentech shares at $97 per share for a total value of $2.1 billion.

The company also posted its third-quarter earnings, noting that earnings increased 6 percent compared to the same quarter last year. Revenue grew 10 percent, driven largely by product sales. The increase in revenues was achieved despite Genentech experiencing a significant decrease in contract and other revenues and royalties.

The company posted a third-quarter net loss of $62.8 million - or 49 cents per share - compared to net income of $63.4 million - or 49 cents per share - in the third quarter of 1998. The loss was attributed to the redemption charges due to Roche's exercise of its option requiring Genentech to redeem its common stock.

Revenues for the quarter increased 10 percent to $345.3 million from $313.9 million in the same quarter of 1998.

Sales of hercepton (trastuzumab) for use with breast cancer patients were $47.0 million for the quarter, while Rituxan sales for non-Hodgkin's lymphoma increased 84 percent to $72.4 million from $39.4 million in the third quarter of 1998.

"I thought the quarter was a good one," Schmidt said. "It was a little better than expected and we were high on the stock. Genentech has an excellent product line, good pipeline, great management. We expect to see product growth over the next couple of quarters."