Genentech won’t surrender independence without a fight
pharmafile | August 8, 2008 | News story | Sales and Marketing |
Roche has moved to end its 'arm's length' arrangement with Genentech, offering to buy the remaining shares in the company for $43.7 billion – but the biotech's board looks set to put up a struggle.
Roche acquired its current 55.9% share of Genentech in 1990, and its policy of allowing Genentech to remain autonomous has been seen as key to their joint success.
The companies are still riding high from a series of breakthrough cancer products they co-developed, including Avastin, Herceptin and MabThera/Rituxan, which Genentech markets in the US, and Roche markets in the rest of the world.
The Swiss pharma company says the move to finally merge operations would allow it to develop its 'hub and spoke' model of research and development, and also produce cost savings for the companies.
But despite enjoying good relations until now, Genentech's board hasn't welcomed the offer with open arms. The Californian company has set up a special committee to review the proposal and its chairman Charles Sanders said the bid was "both unsolicited and unexpected".
He added: "There can be no assurance that the special committee will approve any transaction with Roche."
Genentech's structure means that although its board can vote against accepting Roche's initial offer, it will eventually have to accept defeat. If there is not a majority vote in favour of the offer, two investment banks of Genentech's choice would then be asked to make valuations of the company, and an offer based on these would have to be accepted.
The bid is a very clear change in policy for Roche. In the company's 2007 annual report its then chief executive – and current chairman – Franz Humer indicated Genentech would remain an independent operator, crediting the arm's length agreement with encouraging "a greater diversity of ideas and approaches, increasing the chances of bringing new products to patients".
But Humer stood down as chief executive in April this year, and Severin Schwan, former head of the company's diagnostics division, took over the top job.
He now suggests that while he believes Genentech should maintain its autonomy, he also believes both companies could benefit from closer integration.
"We are looking forward to working more closely with our colleagues from Genentech," he said.
"We have great respect for their achievements and we will take the necessary steps to nurture Genentech's innovative and unique science-driven culture. The Genentech Founders Research Centre will operate as an independent unit within the Roche Group to safeguard a diversity of different approaches and to foster the long term flow of novel breakthrough medicines.
"At the same time, we will be better able to share technologies and expertise in pharmaceuticals and diagnostics across the group and broaden the mutual access to the external innovation networks of both companies."
Schwan suggests that Genentech has grown in recent years, and now resembles a fully fledged pharma company – with this size bringing disadvantages as well as advantages. He says eliminating duplication between the companies will 'unlock synergies' and improve operational efficiency.
US changes
The move will entail a significant reorganisation of Roche's US operations, affecting sales and marketing, manufacturing and R&D.
Roche's current Palo Alto R&D facility will be relocated, with virology operations moving to Genentech's South San Francisco base while inflammation work heads east to Roche's Nutley, New Jersey R&D facility.
Meanwhile, Roche's manufacturing in Nutley will be closed and the US commercial operations based there will move to Genentech's South San Francisco site. Although the existing US sales organisations of both companies will be maintained, they will operate under the Genentech name to make the most of its greater brand value in the US.
Genentech's South San Francisco base will also operate as an independent research and early development centre within the Roche Group, allowing it to retain its existing approach to discovering and progressing new molecules.
The combined company's market share would make it the seventh largest pharma firm in the US, where it will employ around 17,500 people.
