It seems that Roche thinks its management can do a better job running Genentech day to day as it makes its move to acquire Genentech outright. Or perhaps Roche sees the price for acquisition never getting any better in the future.

Novartis bought out the other shareholders of Chiron to own the company in a time of Chiron’s weakness in delivering flu vaccine. Other than a global push back for pricing decisions for its biologic drugs that aren’t accepted in a world where governments control access to drugs based on their reimbursement powers, Genentech is in a strong position.

Former heads of research of Big Pharma companies usually admit they cannot create or maintain the culture that fosters innovation seen in the successful biotech companies like Genentech. Roche’s CEO Severin Schwan says “We are looking forward to working more closely with our colleagues from Genentech. We have great respect for their achievements and we will take the necessary steps to nurture Genentech’s innovative and unique science-driven culture.” Roche management strongly resisted maintaining Genentech’s R&D freedom when it became the majority owner in the 1990s but was “oh so” fortunate that they listened to the wisdom of others and didn’t merge the two companies together at that time. We understand that internal voices at Genentech played a strong role in warning against a “Syntex-style” takeover–the latter results they witnessed with front row seats in the Bay Area.

In today’s challenging marketplace, Roche needs the “golden goose” capabilities of Genentech research to deliver income and products to fill its international pipeline while Genentech needs its freedom to market its products internationally to grow into a global company. Currently Genentech is a USA regional only commercial company. Roche’s first right of refusal for commercial rights outside the U.S. has placed a glass ceiling over Genentech that blocks it from becoming a global company until a date that could be more than 10 years away–sometime after 2020–according to local hearsay.

This author believes that a business model for moving successfully toward personalized medicine will be critical for biopharma companies that survive the new paradigm market that makes the small molecule primary care based “blockbuster “model obsolete for Big Pharma companies. Folks at Windhover have suggested that the “Progressive Blockbuster” model is the future. Genentech is the poster child for that approach as they have built blockbuster revenues through adding layers of income from new indications successively to the initial launch indication. I’ve always expected J&J, with its device, diagnostic businesses alongside its drug subsidiaries under the same “tent,” would show the capability to achieve this first. J&J has stumbled a lot in achieving this goal of marketing drugs with biomarkers and companion diagnostics while Roche surprised me in moving more rapidly in this direction. Clearly, the takeout of Genentech will place them in optimal position to make a success of personalized medicine mission, if they can avoid putting Genentech in down spiral or even worse, a death spiral that their takeover of Syntex produced. But we need to remember that the Syntex situation was from a position of weakness with the patent expiration of Naprosyn. Syntex didn’t have the rich pipeline that Genentech enjoys and now Roche might own worldwide.

The merger of Genentech and Roche to make a personalized medicine powerhouse might be the culmination of that coupling. Genentech learned the importance of having a biomarker for each new biologic with the regulatory barriers they faced to launch Herceptin, initially, without a commercially available diagnostic. Now Genentech looks to have a biomarker and diagnostic for each and every new drug in their pipeline–although it publicly has stated it didn’t want to own the diagnostic. This will be a great success for Roche which potentially has the capability to build the needed diagnostic alongside the Genentech drug.

The remaining big question is whether or not Roche management can avoid destroying the “golden goose” of discovery and research innovation at Genentech when it takes over. Does the Basel giant have the wisdom to provide the steps necessary “to nurture Genentech’s innovative and unique science-driven culture.”

“What ifs” are circulating across the Internet space furiously as insiders at the current Roche Palo Alto research unit believe their site will be closed as part of this action if moved ahead. Will Genentech shareholders agree to this buyout? Will Genentech research employees stay or leave to found new startups and/or strengthen emerging biopharma companies? Will a deluge of commercialization staff currently at Genentech descend on the Bay Area labor market ? Will the takeover give the Bay Area cluster a huge infusion of talent and experienced management to take the region to the next level as the takeover of Syntex did in the mid-1990s when experienced management, especially, in regulatory and clinical alongside research and development staff gave the biotech labor force a huge bump? Watch for the answers as they happen.

Meanwhile, I encourage you to give an ear to our Genentech and Roche colleagues locally as they handle this “rug being pulled out from under their feet” experience. The future is scarey and there will be a lot of dislocations before this is all over–for others in the Bay Area as well as those at these companies. Those who have survived layoffs and takeovers–hostile as well as friendly–need to reach out to comfort and support these industry colleagues who are entering period of potential career “mourning.”

See you at Bio2Device Group tomorrow and the next two Tuesdays.

See related articles at

“Roche makes offer to acquire all outstanding shares of Genentech for US$89.00 per share in cash” at

http://www.transactioninfo.com/roche/home.php

and

“Roche (RHHBY) (JOBS) Offers to Buy Out Genentech, Inc. (DNA) (JOBS) for $43.7 Billion
7/21/2008″

http://www.biospace.com/news_story.aspx?NewsEntityId=103850

Follow In Vivo blog for interesting commentary at http://invivoblog.blogspot.com/

Audrey