In the biggest ever acquisition in Switzerland's corporate history, Roche recently acquired its long-term mate and biotech pioneer, the San Francisco, US-based Genentech. The $46.8 bn deal, for a stake of 44% in the US firm, culminates a longstanding partnership, since 1990, between the two drug firms in a new relationship. Although nearly a year-long drama and suspense had earlier threatened to mar the prospect of what is currently billed as the global pharmaceutical industry's second largest merger of 2009, after the $68 bn deal involving Pfizer and Wyeth, the year-long tussle between the two partners began last year after Genentech's board rejected Roche's initial bid of $89 per share in July. However, the year-long negotiations finally fructified after Roche sweetened its offer price several times to reach an agreeable $95 a share in March this year. Interestingly, Roche has, since 1990, been a majority shareowner in the US biotech giant which sells drugs such as Avastin, one of the world's best-selling biotechnology drugs. The acquisition catapults the Roche-Genentech combine to the 7^th rank in the US pharmaceutical market in terms of market share. The duo would also be saving around $750 mn to $850 mn in costs per year. However, more than anything else, it is the coordination on product development that drove the two companies to the merger table. "This transaction is about strengthening innovation; it is not about cost-cutting," said Severin Schwann, CEO, Roche. "The deal, which values the whole of Genentech at more than $100 bn, underscores the lengths drugmakers are willing to go to shore up weak pipelines of new drugs," commented a report in The Associated Press. Indeed, the recent bout of mega acquisitions, including Roche-Genentech, Pfizer-Wyeth and Merck-Schering-Plough, is a clear indication of the desperation on the part of big pharmaceutical firms amid fast-drying drug pipelines, lack of blockbuster drugs, and the growing onslaught from generic manufacturers, as several drugs go off-patent.

Through this deal, Roche expects to integrate the clinical research teams along with manufacturing, sales and administrative departments of Genentech in the US. Another factor behind the merger is an agreement between the two companies, which concluded in 1999 and holds true till 2015. As per the agreement, Roche can license and sell the drugs of Genentech, the world's oldest and most successful biotech firm, in countries other than the US. To avoid the process of renegotiation, Roche made a takeover offer in July 2008. Combining Genentech's robust portfolio of drugs with its lucrative anti-cancer drugs, such as Avastin with Roche's Hercetin along with various promising drugs in the pipeline, will enhance Roche's earning power that can be used to fund research and development at the time when other biotech firms are searching to find partners with deep pockets. Another objective behind the deal was to create a safeguard from the intensifying competition from generic manufacturers, which is expected to explode in 2011, with major blockbuster drugs going off-patent. Besides the pricing pressure (from generic players), tougher regulatory measures too are adding to the traditional players' woes. Against this backdrop, the deal will pave the way for drugs produced using biotechnology rather than chemical-based, which are easy prey for generic competition. This was evident when Roche announced that this deal will result in making the new entity the largest biotechnology company in the world—and not a drug company.

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