It is buying up less than half of Genentech Inc for a whopping $46.8 billion, but Switzerland's Roche Holding AG may have clinched the best of this year's three big drug deals.

Roche said on Thursday it had agreed to acquire the 44 percent of shares in the U.S. firm it does not already own for $95 each, ending a long pursuit of the U.S. biotech group and its lucrative cancer drugs.

Even if clinical trial results with Genentech's cancer drug Avastin disappoint next month, the purchase of the world-leading U.S. biotech group makes sound financial sense.

Analyst Andrew Baum and colleagues at Morgan Stanley reckon any deal under $120 a share would have been positive for shareholders in the Swiss drugmaker.

On the face of it, Roche is paying a high price.

Its Genentech offer is equivalent to 22 times forecast 2010 earnings, against the 14 times Pfizer Inc agreed to pay for Wyeth in its $68 billion deal, and 12 times agreed by Merck & Co Inc for Schering-Plough Corp under this week's $41 billion tie-up.

But Genentech is a very different business.

It is at the cutting edge of both biotechnology and cancer medicine -- exactly the place where all big drugmakers want to be as the flow of traditional drugs from research labs stalls and patents of today's blockbusters expire.

Moves by Pfizer and Merck to engage in another round of mergers and cost cutting are widely seen as a sign of desperation by companies with flagging franchises.

Big drugmakers have been seeking to diversify and reduce their reliance on slow-growing traditional prescription medicines, which face patent expiries and falling prices.

Roche's play for the remainder of Genentech will also yield synergies -- some $750-850 million a year before tax, according to Roche -- but the big prize is maximum exposure to the fastest-growing section of the global pharmaceuticals market.

AVASTIN GROWTH

Avastin, a new kind of drug that starves tumors of blood supply, is widely expected to be the world's biggest selling drug in just a few years.

The combination of big cancer products like Avastin and Roche's own Herceptin, plus promising pipeline products, will give an enlarged Roche the earning power to fund expanded research and development at a time when rivals are struggling.

Roche finally clinched the deal after Genentech's board recommended shareholders accept the increased cash offer.

With this deal, Roche secures itself the operating cash flow from Genentech it does not already own, access to Genentech's pipeline beyond 2015 and gains access to Genentech's cash pool of roughly $10 billion, said Vontobel analyst Andrew Weiss.

Roche had raised its hostile bid to $93 per share from $86.50 last week, which had prompted the restarting of talks between the two companies, Chairman Franz Humer said.

Roche's shares were up 1.3 percent at 147.40 Swiss francs by 1535 GMT (11:35 a.m. EDT), with the DJ Stoxx European healthcare sector index up 1.0 percent, adding to gains in recent days on expectations Roche would get the deal done and improve its performance with Genentech fully embedded.

Genentech rose 2.0 percent to $94.01.

CRISIS BACKGROUND

Roche's initial bid was rejected last year and the Basel-based company turned hostile after several months, during which time the financial crisis raised doubts about financing and Genentech's shares fell below the offer price.

Roche, however, successfully raised $39 billion in the bond market which, together with cash on hand, gave it the financial firepower to get a deal done. The combined group would be the seventh largest pharmaceuticals company in the United States by market share, with around $17 billion in U.S. annual revenue.

Roche's Humer said he did not believe there was a danger of losing Genentech employees -- a risk some analysts have voiced -- adding the deal would give an enormous amount of security to employees of both companies.

The Swiss group will look at ways of retaining key Genentech staff and has no plans for job losses in research and early clinical development. It expects to keep the sales forces of both companies, but will look at savings in other areas.

Humer is to meet with Genentech chief executive Arthur Levinson as quickly as possible to discuss whether Genentech management stays on.

The objective is not here to walk in and cut costs, the objective is to make this one of the best companies in the world in health care, he said. I have a strong conviction that most if not all senior management will stay on.

(Additional reporting by Katie Reid and Jason Rhodes, and Ben Hirschler in London; Editing by Andrew Callus and Elaine Hardcastle)

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