Jeremy Warner's Outlook: Roche in danger of killing the golden goose

If it ain't broke, why break it? Roche's $43.7bn cash offer for the outstanding minority in Genentech risks upsetting a model partnership between big pharma and innovative biotech, an apparently perfect marriage of Roche's marketing might with Genentech's unmatched record in cancer drug discovery, including the breast cancer drug Herceptin. Yet here comes old clumsy clogs with a low ball bid for its beautiful young soulmate.

With Genentech's shares already trading well in advance of the 9 per cent premium Roche is offering, the Swiss parent is going to have to offer quite a bit more to succeed. Biotech buyouts are usually at much bigger premiums, though with 56 per cent of the stock already, Roche plainly doesn't have to pay for control. It already has it.

Even so, nothing could be more stupid than for Roche to get into a standoff with a company so key to its success. There are said to be reasonable synergies involved in a full merger of the operations, and Roche also gets access to Genentech's cash flow. Yet once wholly in the bureaucracy of the mothership, Genentech will lose the independence of management and remuneration that may well underpin its success. Roche needs Genentech's pipeline to compensate for a growing absence in its own. Yet for how much longer will the pipeline thrive once ruled by the dead hand of Big Pharma?

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