Does Roche Really Pose a Threat to Genentech's Culture?

| About: Roche Holding (RHHBY)

This article from the San Jose Mercury News has gotten a lot of attention for its take on the Roche (OTCQX:RHHBY)-Genentech (Private:DNA) struggle. The reporter, Steve Johnson, is asking if all the concerns about Genentech's fate are overdone.

It's true that the precious-unique-culture stuff can be overemphasized. Roche has indeed been insisting that they want to preserve Genentech's entrepreneurial spirit (although, to be honest, they'd say that no matter what they were really thinking. What are they going to do, say that they really just want all the Avastin revenue and whatever else is high up in the pipeline?). And, as the article correctly points out, there have been any number of good-sized biotech outfits taken over by Big Pharma over the years.

But what worries me a bit is what's happened to some of those biotechs. It really is rare, from what I can see, for a company's culture to stay the same after something like this happens. It's a bit like those singers who make it big from obscurity; you read these articles saying that they're just the same small-town person that they always were. Right - that would be the least likely outcome of them all.

The thing is, the atmosphere of the acquiring company is going to seep in, no matter what. The new projects are going to be approved using the processes of the larger company, aren't they? They'll be expected to fit into a new, larger picture, and to find their place. And the compounds that advance will advance against the larger company's criteria, not the ones in place under the old regime.

Those are just the direct effects on research. What might be a larger difference is a psychological one. As a stand-alone company, even one the size of Genentech, you live by your own wits, but that changes. As part of a larger company, you know that there are other projects out there, other divisions, and that some of these will be expected to pick up the slack now and then. It's a big company, after all. It'll keep going, even if you don't deliver this year. Right? That's actually one of the trickier parts about running a company with a lot of sites and research areas - the inevitable frictions when one group or another feels (sometimes correctly) that they're being leaned on more than those lazy bums over in XYZ, who haven't delivered a clinical candidate since (fill in the year).

At more than one of my previous jobs, I've heard a lot about a "sense of urgency", and how desirable that is. (That's mostly true, although too much of it can perhaps cause you to do something stupid under time pressure.) Overall, it really does help to know that you really do have to deliver, that there's no net down there, no one waiting to cushion the blow. It doesn't make things fun, not necessarily, but it does make them more productive. Remember Samuel Johnson's remark about the minister-turned-forger William Dodd: "Depend upon it, Sir, when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully."

Unfortunately, I think the key line in the Mercury News piece is this one:

Besides, Genentech scientists don't have a lot of other employment options these days, according to Rodman & Renshaw analyst Christopher James. "There would be more of a concern in a market where there were a lot of opportunities for people to leave," he said.

There's the rub, all right. . .