Biotechnology stocks and exchange traded funds (ETFs) could get a shot in the arm, as Genentech (DNA) rejected a takeover bid from Roche, which they feel has undervalued the company.

Roche, the Swiss pharmaceutical company, offered Genentech an initial bid of $43.7 billion, which was rejected. Roche already owns 55.9% of Genentech, reports Andrew Pollack for The New York Times. Genentech’s stock is up on hopes that Roche will eventually raise the offer.

The two companies are expected to go into negotiations and Genentech’s response appears friendly. In the interim, Genentech is going to apply a broad-based employee retention program, in hopes that the scientists and executives will not leave early and force the company to lose its independence.

Biotechnology has seen a number of deals struck between companies. Last month, Novartis bought research partner Speedel, and GlaxoSmithKline struck an insomnia drug licensing deal with Actelion.

Related ETFs include:

• SPDR S&P Biotech (XBI): up 16.8% year-to-date; DNA is 4.2%
• PowerShares Dynamic Biotech and Genome (PBE): up 7.1% year-to-date; DNA is 5.6%
• iShares Nasdaq Biotech Index (IBB): up 9.9% year-to-date
• iShares MSCI Switzerland (EWL): down 8.9% year-to-date; Roche is 13.7%

For full disclosure, Tom Lydon;s clients own shares of IBB.

Tags: Biotechnology, Europe, EWL, IBB, PBE, Switzerland, XBI