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Stock Analyst Update

Genentech's Shares Get Spanked by Its Parent Again

But pain from Roche's latest scaleback in stake is unlikely to last.


Shares of biotechnology giant Genentech (DNA) were punished Thursday for the actions of its parent company, Swiss drug giant Roche Holding (ROHHY), but shareholders of the biotech company shouldn't be too worried.

The stock fell 10.6% to 187 1/2 on news that Roche, which owns a majority in Genentech, would be selling as many as 19 million shares, making as much as $3 billion from the move.

Roche has profited heartily from its relationship with Genentech over the last year. In June, Roche exercised an option to buy the 33% of Genentech that it did not own at a price of $82.50 a share. The timing proved ideal, because biotechnology stocks have since rallied. In July, Roche sold 18% of its stake in Genentech to the public at $97 a share. Roche has continued to shed Genentech shares as the biotech company's stock price has skyrocketed. For example, in addition to Thursday's sale announcement, it sold 20 million shares in October.

The problem for Genentech shareholders is that Roche is reaping the rewards while Genentech's stock is getting brutally punished, albeit temporarily. But Roche's move to sell more stock shouldn't have a direct impact on the biotech company's financial stability.

Moreover, there probably won't be many more large sales anytime soon. Roche is required to maintain a majority stake in Genentech, and after this sale, its investment is expected to drop to 58% of shares.


Emily Hall does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.