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Case Memo of Roche

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Case Memo of Roche

Group Members: Cai Aiyong, Gong Haoran, Song, Shizhong, Li Wei, Zhou, Wenjun

1. Why is Roche seeking to acquire the 44% of Genentech it does not own? From Roche’s point of view, what are the advantages of owning 100% of Genentech? What are the risks?

(1) reasons and advantages are as follows:

A. Genentech had become an important part of Roche’s business, representing 24% of Roche’s pharmaceutical product sales in 2008. Several of Genentech’s pioneering products achieved very strong market positions due to their medical differentiation, commanding high prices. Products originating from Genentech represented 46% of total sales of Roche’s 20 top-selling drugs on a worldwide basis. Avastin, for example, accounted for 14% of Roche’s total pharmaceutical sales in 2008. The market had many “me-too” drugs, which were similar in composition and treatment to existing products, and relatively little innovation. Given the lack of success in bringing new and innovative drugs to market, many pharmaceutical companies were also seeking to diversify from the prescription drug business by acquiring generic-drug companies.

B. Genentech was increasingly coming into direct competition with Roche in several U.S. markets. In developing small molecular products, Genentech had begun to encroach on Roche’s traditional territory, while Roche was preparing to launch products in the U.S. that would compete with existing Genentech products. A merger of the two companies would create the ability to collaborate on a worldwide scale.

C. Outside of R&D, Roche managers believed there was increasing duplication of effort and facilities at the two companies and, thus, opportunities to create value by cutting costs and streamlining operations throughout the acquisition.

D. Beginning in 2007, Genentech began to generate large amounts of free cash flow.Genentech did

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