* Roche adds to breast cancer drug offering with Seragon
* Price $725 mln cash and up to $1 bln in milestone payments
* Deal seen as pricey but promising by one analyst
* Roche shares up 0.5 pct, outpacing European sector (Adds Breakingviews link)
ZURICH, July 2 (Reuters) - Roche Holding AG said it would pay up to $1.725 billion to buy Seragon Pharmaceuticals, a privately-held U.S. biotech company that researches breast cancer treatments.
Roche has long dominated the field of breast cancer with drugs such as Herceptin and recently won approval for Kadcyla and Perjeta, two treatments for patients whose cancer cells contain increased amounts of the protein known as HER2.
San Diego-based Seragon was spun out from Aragon Pharmaceuticals last year when that company was bought by Johnson & Johnson. Seragon is focused on developing a new generation of oral medicines that it believes offer an improved way of tackling hormone receptor-positive breast cancer, and potentially other cancers.
Its most advanced experimental drug, ARN-810, is currently in initial Phase I clinical trials for breast cancer patients who have not responded to current hormonal agents.
Roche said Seragon's so-called oral selective estrogen receptor degraders, or SERDs, would complement existing research and development programmes in breast cancer under way at the Swiss group's Genentech unit.
The Basel-based drugmaker will pay $725 million in cash and may hand over as much as $1 billion more if Seragon achieves drug development milestones.
HIGH PRICE SEEN AS JUSTIFIED
The price Roche is paying for Seragon looks relatively high for a firm with only one treatment in a Phase I study, but can be justified because Roche is filling a huge gap for future breast cancer treatments with the purchase, analysts at Zuercher Kantonalbank said.
"We assume that Genentech's scientists see considerable potential in SERDs, because otherwise they would not have accepted this relatively high price," ZKB said.
Roche shares were up 0.5 percent rose at 0821 GMT, outpacing a 0.3 percent rise in a wider index of European drugmakers .
Since acquiring Genentech for $46.8 billion in 2009, Roche has earned a reputation as a disciplined acquirer, prepared to walk away from potential deals rather than overpay.
Chief Executive Severin Schwan abandoned a $6.8 billion deal to buy U.S gene sequencing company Illumina in 2012 and has snapped up a couple of smaller diagnostic companies this year instead of pursuing multi-billion deals.
Roche has also partnered with various companies to develop antibiotics and said last week it would work with Inception Sciences Inc and Versant Ventures on a new company to develop therapies for patients with multiple sclerosis.
Seragon is the second notable acquisition in as many months for Roche, which bought privately held U.S. gene-sequencing firm Genia Technologies for up to $350 million in June, securing access to a technology that should allow it to decipher human genes more quickly at a cheaper cost.
The acquisition represents a response to investors who wondered how Roche might use its cash now that its ratio of net debt to assets is back within its target band of zero to 15 percent after paying down debt from acquiring Genentech.