Roche / Genentech Is a Done Deal

| About: Roche Holding (RHHBY)

So Roche (OTCQX:RHHBY) and Genentech (Private: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 (NYSE:PFE)/Wyeth (WYE), Merck (NYSE: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.