By Marisa Taylor

Shareholders of Houston-based biotechnology company Tanox on Monday approved Genentech’s acquisition offer of $20 per share.

Biotech bellwether Genentech will buy 34.2 million shares of Tanox, which is 75.5 percent of the company’s total outstanding shares, and 99.9 percent of the number of shares voted at Monday’s meeting.

Tanox represents yet another brick in the wall of biotech giant Genentech’s growing empire.

Genentech revealed its intent to purchase Tanox in November. Tanox, which specializes in monoclonal antibodies, has already partnered with Genentech and Novartis in the past to develop the asthma treatment Xolair, which received FDA approval in 2003.

Since then, Xolair has seen significant success—the drug raked in $320 million in sales in 2006. And Tanox is developing an inhibitor antibody treatment for HIV-AIDS called TNX-355, which it says is showing “significant antiviral activity” in late-phase clinical testing.

Genentech reported its fourth-quarter financial statement January 10, revealing an increase in earnings of more than 70 percent. The company brought in more than $2 billion in sales during that quarter, a 54 percent increase from the $1.1 billion in sales it made during the fourth quarter of 2005.

Genentech CEO Arthur Levinson emphasized during a conference call after the release of the earnings report that “building our pipeline is [Genentech’s] No. 1 focus and priority.”

And the company has indeed been capitalizing on its innovation: Following the recent FDA approval of Lucentis, a new treatment for wet age-related macular degeneration, the drug pulled in $380 million for the six months of 2006 that it was on the market.

Genentech’s blockbuster cancer drug Avastin is undergoing late-phase trials for kidney, breast, prostate, and ovarian cancer, among others treatments, and has been earning its keep by bringing in $1.7 billion in sales in 2006.

Investors attending the JP Morgan health care conference in early January selected Genentech as their pick for the best performing large cap biotech company in 2007.

Xolair Revenue

The move to acquire Tanox will earn Genentech additional revenue by eliminating its royalty payments for Xolair. However, some analysts feel that Tanox’s experimental HIV-AIDS treatment will be a drain for the company. “We view TNX-355 as a drug that faces an uphill battle to commercial success,” wrote Lazard Capital Markets analyst Joel Sendek in a research note.

Sendek explains that the required dose of the drug is “significantly greater” than that of other monoclonal antibodies, and so with a high price tag, it might have difficulty competing with other HIV-AIDS therapies.

On the other hand, if Genentech continues to expand the Xolair label for food allergies and pediatric asthma, top-line growth will expand at the same time that royalty payments disappear, which Sendek sees as “one of the major benefits of this acquisition.”

And JP Morgan biotechnology analyst Geoff Meacham has a positive outlook for Genentech’s earnings. “Genentech has a product portfolio that can sustain top-tier earnings growth for the next two to three years,” he said.

Shares of Genentech rose $1.39 at $88.22 on the New York Stock Exchange.