By Mary Welch

Genentech Inc.'s fair market price finally was showcased as the company, freed from the $82 stock option held by F. Hoffmann-La Roche Ltd., began selling on the New York Stock Exchange as an independently traded company.

Roche Holdings Inc. offered 20 million Genentech shares at $97 per share. The price of the stock (NYSE:DNA) shot up immediately - to the level analysts and investors believed was a better reflection of the company's value - and didn't return, closing Tuesday up $30 per share at $127. It sold between $116.50 and $132 as 11.6 million shares were traded on the stock's first day.

"The last time I looked, the stock was at $119 and the market was down," said Marie Kennedy, a Genentech spokeswoman. "That's pretty good. It's a milestone in Genentech's history. We're able to have our stock price reflect its real worth rather than have the cap imposed by Roche."

Genentech is "no longer cheap, that's for sure," said Eric Schmidt, vice president of SG Cowen Securities Corp. in Boston.

The offering represented 16 percent of Roche's holdings, with an additional 2 million shares to be used as an overallotment option for the underwriters. If the option is exercised, net proceeds to Roche would be about $2.1 billion, clearly the largest initial public offering (IPO) in biotechnology.

After the offering is completed, Roche, based in Basel, Switzerland, will own 84.3 percent of Genentech's common stock. If the underwriters purchase the additional shares, Roche would own 82.7 percent of the company. Genentech does not receive any of the net proceeds. The transaction's closing is expected to occur on Friday.

Genentech's stock had traded on the NYSE under the symbol GNE from March 2, 1989, through June 17, 1999, when trading was suspended.

"It's a pretty unique situation," said Jon Alsenas, managing director of ING Baring Furman Selz LLC in New York. "You've got a large-cap company essentially doing an IPO. You've got Genentech at a pretty hefty premium. I won't venture a guess as to where the price will settle, but it's easy to see that a lot of people want this stock."

The history of Genentech and Roche dates back to 1990, when Roche Holding Ltd. invested $492 million in Genentech and purchased half of the company's stock for $36 per share, resulting in Roche owning 60 percent of Genentech.

That merger agreement was amended in 1995 to extend for another four years Roche's option to purchase the remaining common stock, at a new purchase price of $82 per share, until June 30, 1999. Had Roche not exercised the option, Genentech's stockholders would have been able to buy some or all the shares at $60 per share within a 30-day period starting July 1.

Roche, however, didn't wait until the deadline. Last month it exercised its call option for the remaining 33 percent of Genentech's common stock at $82.50 per share, for about $4.2 billion. (See BioWorld Today, June 4, 1999, p. 1.)

Observers believe the stock will remain strong after its healthy debut.

"Genentech did a wonderful job telling its story, and it's a strong one. What you're seeing is retail interest and strong institutional interest as well," Schmidt said. "It will continue being the industry's leader since Genentech has a very strong pipeline and robust revenues from recently approved drugs, like Rituxan and Herceptin. Fundamentally they are as strong as anything you'll get in the industry."

Alsenas agreed. "They have a promising pipeline. Rituxan and Herceptin are doing quite well and Nutropin Depot will hopefully come in and take a chunk of the $1.5 billion market. Here you have a drug that is just as effective and easier to use. Hopefully they'll be able to command a sizeable portion of the patient population at a premium price. That's Biotech 101."

Herceptin (trastuzumab) is used in the treatment of certain patients with metastatic breast cancer. It posted first-quarter 1999 sales of $39.9 million.

Rituxan (rituximab) is indicated for the treatment of patients with relapsed or refractory low-grade or follicular, CD20-positive, B-cell, non-Hodgkin's lymphoma. For the first quarter of the year, it generated sales of $57.1 million, up from $37.7 million from the first quarter of 1998. Rituxan is partnered with Idec Pharmaceuticals Corp., of San Diego.

Last month, Genentech submitted a new drug application for Nutropin Depot, a long-acting formulation of recombinant human growth hormone. Nutropin Depot combines Cambridge, Mass.-based Alkermes Inc.'s ProLease injectable delivery system with Genentech's human growth hormone. The new product would provide sustained release of human growth hormone, allowing for once-a-month or twice-a-month dosing regimens instead of daily injections. The drug is used to treat short children with growth hormone deficiencies. About 200,000 children in the U.S. suffer from the disease. (See BioWorld Today, June 29, 1999, p. 4.)

J.P. Morgan & Co., of New York, acted as the lead manager for the offering. Goldman, Sachs & Co., Merrill Lynch & Co., Warburg Dillon Read LLC, and BancBoston Robertson Stephens Inc., all of New York, acted as co-managers.