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Roche (RHHBY - Analyst Report) announced that it has entered into a definitive agreement to acquire privately-held biotechnology company, Seragon Pharmaceuticals, Inc.

The acquisition will provide Roche rights to Seragon’s entire portfolio of investigational next-generation oral selective estrogen receptor degraders (SERDs) for the potential treatment of hormone receptor-positive breast cancer.

As per the terms of the agreement, Roche, through its subsidiary Genentech, will make an upfront cash payment of $725 million. The agreement also includes milestone payments of up to $1 billion.

The transaction, subject to customary conditions, is expected to close in the third quarter of 2014.

Once the transaction is completed, Seragon’s portfolio will be integrated into Genentech Research and Early Development.

We note that Seragon’s lead candidate, ARN-810, is a next-generation SERD that is currently in phase I. The trial is being conducted among patients who have hormone receptor-positive breast cancer and have failed current hormonal agents.

We remind investors that Roche is a leader in drugs for oncology, immunology and infectious diseases.

In particular, Roche is a leader in breast cancer market with its HER2 franchise with strong demand for drugs like Herceptin. The HER2 franchise includes Herceptin, Perjeta and Kadcyla.

The acquisition will further strengthen Roche’s pipeline. Seragon’s pipeline of next-generation SERDs will complement Roche’s existing research and development programs in breast cancer.

Roche currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader healthcare sector include Regeneron Pharmaceuticals (REGN - Analyst Report), Shire (SHPG - Analyst Report) and Allergan (AGN - Analyst Report). 

While Regeneron Pharma carries a Zacks Rank #1 (Strong Buy), Shire and Allergan hold a Zacks Rank #2 (Buy).

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