Posted by: Audrey Erbes | July 24, 2008

More Details on Roche’s Plans for Genentech

Looks as if Roche wants to “dress” itself in the Genentech brand based on Pharmaceutical Executive’s online report today. Genentech’s sales force
looks safe to me with regard to initial job cuts but many of the non-R&D 
balance of the company functions in South San Francisco could be at risk 
when the to-be-full owners move into the “house” and take over
day-to-day management. There’s been mention of a possible increase
in the sales force in the Pharmexec’s report of their interviews with Roche management.  I read Roche’s intent (while risking the loss of the Genentech
Golden Goose’s future product productivity) is to achieve a transformation
of its own relatively nonproductive R&D by “merging into Genentech” —
as moving into the Genentech “business model house” while bringing
along a lot of their possessions. They may bring a lot of “baggage” which may be
inappropriate and prove destructive of the research culture which has
been so successful at Genentech.
Will the Swiss accountants and bankers be able to transform the combined companies via their access to appropriate tools, diagnostics and biologic drugs
to take the lead among Big Pharma companies in moving away from the primary
care-based blockbuster business model to a more successful one?  Will they
have the management and leadership skills in developing future personalized medicine products as the company’s principal source of revenue? Or will their eagerness to cut costs lead them to destroy the critical drivers of that potential success and strip the company of its head, heart and passion that made
Genentech so distinctive and successful. They unintentionally stripped
Syntex, a former darling of Wall Street for its innovation in R&D, of its
essential “DNA” and eventually the unit’s “will to live” as they laid off its senior management, commercial and eventually development “worker bees” and
sold off its assets around the world. Their intent was to maintain the Syntex R&D Golden Goose but they lost sight of what nurtured it as they sought to recoup
their purchase investment in raiding the coffers and selling off assets. Genentech management watched these events close and up front in the mid-1990s, fought
for their independence and until just this week successfully convinced Roche
not to do this to Genentech. What a shock for them to witness Roche’s seeming
corporate memory loss! 
It appears from my point of view that Roche is trying to take a giant leap in the direction of becoming a company based on “progressive blockbusters” a la the Genentech business model of building value and revenues with successive indications for its specialty biologic products at very high prices. Their expect they have a hedge against future increased U.S. government control of pricing of drugs, and eventually, refusal to reimburse high priced biologics that have only a minimal impact on life expectancy (a la the U.K.’s NICE committee failure to reimburse many biologics) by becoming a leader in producing biosimilars.

See how you read the “tea leaves” expressed by reported statements of Roche’s Schwan from the Pharmaceutical  Executive Report…(he)”did note that some jobs could be transitioned or eliminated. Operational efficiencies in late-stage development, manufacturing, commercialization, and administration will be combined to reduce complexity and reduce redundancy, ….. Manufacturing facilities will also be streamlined, with a principal building in San Francisco and another operation in New Jersey. In addition, the sales team may be increased to cover new products. Roche will run the commercial operations in the United States from San Francisco and will consolidate all headquarters functions to its West Coast base. The Nutley, NJ plant will close, furthering pharma’s exodus from the Garden State.” (Bolding is mine.)Source:

I don’t expect the final buyout papers will be signed in 2008 so there will be some time for Genentech staff to get over the initial shock and I expect “denial” on the part of many, the move to anger and eventually to acceptance of the outcome as they move through the recognized steps of “mourning a loss.” The success or failure of Roche’s plan will depend on whether or not the personnel can “commit” to the new management.



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