Should Genentech Become Part of Roche?

Now for some belated Roche/Genentech comments: the first thing that I found surprising about this was that there was some surprise involved. Even though a move to buy the rest of Genentech has always been a possibility, the actual timing of the announcement on Monday seems to have been unexpected out in South San Francisco. But it probably had to be that way.

What alternative was there? Roche wouldn’t have made some announcement along the lines of “You know, we’re thinking about buying the rest of Genentech sometime pretty soon”, because that would have made the deal even more expensive as everyone piled into the stock. Regulation FD would mean that they really couldn’t give a heads-up to Genentech’s management without telling the world – after all, these are two separate companies, so it’s not an internal matter. So this had to be done just like any company making a bid for any other – with the difference being that Roche already had a head start on a majority of Genentech.

The second thing that occurred to me, though, was “why, and why now?” The first half of that question is answered, as are most “I wonder how come. . .” queries are, with the word “money”. Genentech has been coining the stuff, and Roche would like to have all that revenue instead of just part of it. “Why now” comes down to money, too. The two companies were due to renegotiate their revenue sharing in 2015, and Roche apparently decided (among other factors) that the US dollar was about as cheap as it was going to get. You could turn the question around and ask why Roche took the whole don't-own-it-all approach in the first place. (They did own it all for a while, but put Genentech back out into the market in 1999).

I always assumed that they were worried about messing up whatever it was that had Genentech doing so well in the first place. If true, that showed an admirable level of self-knowledge on Roche’s part. Too many other companies seem to assume that the outfits that they buy will be just fine under the new letterhead – even better, probably, now that they’ve been bought by such a fine bunch of people! But it certainly doesn’t always work out that way. The challenge is to keep the acquired company, and its culture, from dissolving into the larger one like a sugar cube. (The alternative is to just buy companies for their physical or IP assets, not giving a hoot for who might be working there, and we’ve seen plenty of that, too).

But Genentech is a mighty big sugar cube, and it’s a long way from the rest of Roche’s operations. I’d guess that the folks in Basel are planning (hoping) that Genentech will go on just like it has, just with a few accounting adjustments (like all the money ending up on Roche’s books). There are probably a lot of reassuring messages going out to the Genentech people about how gosh, we already had a majority interest in you, so this is just sort of a formality, and it’ll probably save lots of money besides, you know, so just keep right on doing what you’re doing. . .

We’ll see. The Swiss are not known for their delicate managerial touch. One solution that's been

talked about

would be (once Roche has Avastin et al. safely booked) for them to spin out a new version of Genentech as a publicly traded company again - 1999 all over again. And we'll see if Genentech even goes for the offer - there's a

lot of doubt

about that, at least at the price the Roche is offering. They've apparently opted out of the provisions in the 1999 agreement about how Roche could buy them, so all sorts of things are now possible. . .

Comments

[justwondering]

Isn't 56% of amazingly awesome and successful better than 100% of 'par for the course'. It seems foolish (at best) for Roche to assume that they can acquire such a fiercely independent bunch of geniuses without destroying the essence of what makes Genentech successful. Their assurances of "things won't change" don't really mean much. They've already said that late stage go/no-go decisions would be transferred from Genentech to Roche. That may seem like a minor issue to Roche but that underlies how little they understand about the culture of Genentech where emphasis on the patients, the science and the commitment to meeting significant unmet medical needs continuously drives the decision making processes.

I think that if Roche is "successful" in their bid that they will ultimately lose much more than they've gained because 56% of a whole lot is a way more than 100% of not so much. But ultimately the biggest losers may be the patients who depend on the innovation that Genentech has fostered for more than 30 years.

[beta delta]

having been a shareholder of dna in the past, and wishing to be able to own them in the future, this is a bad idea for dna the company, but a great idea for dna shareholders..

american companies are basically selling at 25-50% off suggested retail prices. compared to many foreign currencies..

US currencies are currently at their virtual lows .... should roche take dna private.. keep them that way, for 2-3 yrs.. then roll them out again as a publicly traded company, roche again will profit heavily as the US dollar firms up and outperforms other currencies over the next few years...

[Jake2]

If there is prolonged wrangling over the proposed take over, how will this affect current holders of DNA? Is it best to hold on for another increase in the price, or should a holder take the recent pop and sell now? Thanks for your views.