Roche / Genentech Is a Done Deal

So Roche (RHHBY.PK) and Genentech (DNA) have come to terms: $95 per share. They'd offered more last fall, but, well, it isn't last fall any more. And this was still well above Roche's recent offers, although they'd come up to $93 in public before this was announced Thursday morning. Genentech shares had been climbing up to much closer to Roche's revised offer, so the deal was starting to become clearer in the last couple of days.

What's this going to mean? The main encouraging thing I can take out of it is that Roche is saying that they want to keep Genentech's R&D operation separate, and to keep their talent and their approach to discovery. It's nice to at least hear lip service to that idea - it's a start - but now we'll have to see if they follow through.

Overall, though, I don't like big mergers, as has been a repeating theme around here. And now we've had three whoppers in just the last few months: Pfizer (PFE)/Wyeth (WYE), Merck (MRK)/Schering-Plough (SGP) (I know, I know, I'm supposed to have those names the other way around, but come on), and now Roche/Genentech. So I can't say that the industry is moving in a way that makes me really happy. But at the same time, I can see why all this is happening, so perhaps it's the underlying trends which lead to these things that should be making me unhappy - I should be upset about the causes, not the symptoms. (Mind you, I think that the decreased research productivity that accompanies some of these mergers tends to blend the whole cause and effect relationship up a bit).

And it's important not to confuse these moves with the current financial mess. The drug industry has problems totally outside the turmoil in the credit and equity markets. If anything, some of these conditions are making it harder to do the deals that the companies themselves feel like they have to do (look, for example, at how Pfizer had to work to get the financing together for the Wyeth takeover). No, if the markets were in better shape, we'd be seeing the same sort of thing - maybe a bit faster, or a bit slower, but different only in degree, not in kind.

We aren't producing enough good new drugs quickly enough. Collateralized debt obligations and credit default swaps have nothing to do with that. And we're either going to have to find ways to increase our research productivity, or batten down the industry for survival under the conditions we have now. Mergers, right- or wrong-headed, are part of the latter process. If we could find a way to do the former one, we wouldn't be in the shape we're in now.

Comments

[ScientistSa...:]

Dude, You are smoking crack if you think Roche is going to keep research here "independent." Even if they wanted to, much of top talent is going to leave.

Mar 12 11:44 AM

[Rohan C. Pease:]

Top talent will stay. Roche is bidding for DNA so that after their partnership ends in 2015 Roche will be able to keep researchers as well as their labs in tact and without disruption. This deal will get done, Roche has a strategic position in DNA, and like the author said, far outweighs credit default swaps and the like. Arbs, this dosen't come any better in this environment.

Mar 12 03:02 PM

[ex-chem:]

To ScientistSailor: Where's the "top talent" going to go? China? Goodbye DNA!!

If anyone thinks "it doesn't come any better", I don't know what planet they may be on. Mergers such as this don't have a very good track record. I'm sure this one will work, however, since the "researchers and labs will be kept intact". (sarcasm)

ex-chem (and happy)

Mar 12 05:18 PM

[ex-chem:]

Just another comment, in general---

>>>"We aren't producing enough good new drugs quickly enough."<<<&l...

You're right on--and it's not going to change, regardless of mergers, synergies, outsourcing nor high throughputs--

Americans (public, FDA, lawyers, class actions, judiciary, etc.) will no longer accept any pharmaceutical agent unless it is 100% effective, and 100% free of any and all side effects that can be imagined. The cost (and difficulty/improbabili... of producing such an agent is high enough that such agents will never be developed or sold.

The era of blockbuster medicines being developed is over--because Ma Kettle might develop a bunion, 300,000 people will hop on the class action, and an independent researcher from an obscure university/country will publish results confirming the bunion risk----and that will be that for the "miracle cure", and the pharma company touting said cure will be on the hook for millions/billions.

Would you invest in a climate like that? Not me.

ex-chem

Mar 12 05:31 PM