Founded 30 years ago at the dawn of biotech, Genentech is a legend in an industry where companies yearn to do what it does: to make billions of dollars off of novel drugs while remaining true to innovation and science.Unfortunately, it's also a legend being positioned for a fall.
That's because the Swiss drug giant Roche, which has owned a majority of Genentech shares since 1990, wants to buy the 44 percent of shares in the company that it does not already hold. Late Thursday, Genentech said it had formed a special committee to evaluate the $89 per-share offer, which many analysts and shareholders believe is too low.
At any price, this whopper of a deal could mean an end to Genentech’s distinctive culture of innovation, despite promises from Roche not to meddle.
It would also provide more evidence that the days of “Big Biotech” – a relatively small subset of successful companies in an industry that takes years to develop products and to become profitable – are over. Big Biotech is being swallowed by Big Pharma.
Facing slender pipelines for new drugs and expiring patents for blockbusters, big pharmaceuticals are snapping up medium and large biotechs with abandon. Biotech’s biggest selling product line this year will not be new meds for cancer or Alzheimer’s, but deals.
Roche’s initial Genentech offer is $43.7 billion, equal to over half of all of biotech’s revenues last year. The offer was 9 percent over premium last Friday, but the share price has quickly risen to $95, signaling that shareholders want more. Analysts expect Roche to pay $100 a share if they are serious about the purchase.
"The special committee intends to proceed in a timely manner to review the Roche proposal, which was both unsolicited and unexpected," said committee chairman Charles Sanders in a statement. "The outcome of this process has not been pre-determined, and there can be no assurance that the special committee will approve any transaction with Roche."
In the past, Pharma companies have been content to support certain biotechs like farm teams in baseball through licensing and milestone deals, worried that engulfing them might destroy the innovation.
No more. In April, Japanese pharma giant Takeda bought Millennium Pharmaceuticals for $8.8 billion, and last year biotech biggies such as Medimmune were sold for billions of dollars. And remember Chiron? Another biotech pioneer for the San Francisco Bay Area, Chiron was purchased by Novartis in 2005, and now seems to have vanished.
Nobody seems as intent on buying new companies as Roche. Already this week it has bought Canada’s Arius Research for $189 million, and Mirus Bio of Madison, Wisconsin for $125 million, on top of the Genentech offer late last week. Apparently, new Roche C.E.O. Severin Schwan likes to shop.
Roche argues that duplications in the two companies are costing hundreds of millions dollars a year, and efforts to keep the two companies separate keep operations from being as smooth as they might be.
But critics of the deal insist that this is really about Roche taking advantage of a weak dollar and a declining stock market.
One thing is likely: there may not be another Genentech for a long time. Any company with the potential will be snatched before it has a chance.
This may not be healthy for the larger pharma industry, which not only needs more novel drugs, but it also desperately needs novel new business strategies and new cultures that are able to keep the innovations coming even in a huge company.
Genentech was the most important player in this experiment to find a new way to incorporate both.
If the deal gets done, the ball will be in Roche’s court to see if its buying sprees will help it become more like Genentech, or will turn Genentech into another disappearing act like Chiron.
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