[Through the Glass Door] The Genentech Acquisition: An Open Letter to Basel

Severin Schwan, Chief Executive Officer – F. Hoffmann-La Roche AG

Konzern-Hauptsitz, Grenzacherstrasse 124, CH-4070 Basel


Dear Severin,

Congratulations! On behalf of your shareholders you’ve just pulled the trigger on the full acquisition of Genentech , one of world’s most successful and innovative biotechnology companies.

Like being handed the keys to the New York Yankees or the Manchester United, your first imperative is don’t blow it!

Your firm has been highly successful for over 110 years and has become one of world’s largest pharmaceutical companies. It may seem bold for an executive and team coach to offer advice.  It’s not: it’s one of the ways people here work.

At a purchase price of $46 billion it doesn’t look on the surface that you’re just buying current drug revenue streams, or simply locking up intellectual property rights from early stage research. And Oyster Point is OK property but it’s not Sonoma so you’re exactly spiriting away a great deal on sweet real estate.

As the new owners you might want to think about how you’re going to keep some of the current great talent, or even attract new talent when some of the newly minted Genentech millionaire employees decide to do the unusual and really retire. It’s not easy – the people who settled in North America in the old days were adventurers and today’s inhabitants still are. I meet these entrepreneurial souls all the time, and a few of them are even from Switzerland, where they say (sorry for the candor) that the phrase “Swiss creativity” is an oxymoron.

Here are a few suggestions:

  • Talk to John Chambers. Yes, he’s in a different business but Cisco has great press [See research pdf on the subject here ] for being able to  retain the talent in companies they pick up through acquisition. They might be on to something.

  • Spend time with business writer Daniel Pink, author of “A Whole New Mind ." His essential premise is the stuff the can be proceduralized will end up in low cost places where they have strong science and math programs, and can communicate well in English (the worldwide de facto business language), such as India. Creativity – which is what enabled those Genentech scientists to do so well – is that stuff you can’t automate.  While I’m still banking on China, where entrepreneurial skills plus analytical chops abound, I’d listen to Pink – he seems have done his research well. The bad news is that creativity tends not to work in top-down hierarchies, the perceived common MO for big pharma organizations.

  • Look at the Novartis (also based in Basel) playbook for the Chiron acquisition and then avoid whatever they did. The $5.1 billion Novartis spent for the 51% of Chiron they didn’t own looks like chump change in comparison to the money you’re spending for Genentech but you might learn a few things. Net-net the Novartis purchase looks like a few patents including Hepatitis C, and some vaccines know-how: nothing like timing and SARS to make things look attractive. Many of the best and brightest folks who worked at Chiron were gone quickly, and they didn’t necessarily even stay around long enought to make it to the ranks of Novartis keepers.

  • Avoid tampering with things that work well that you don’t understand. Genentech has been a client and I still can’t figure out how organizationally they do what they do: it just works really, really well. There is something that Art Levinson and his crew are able to pull off that is hard to duplicate – mess with it and you are messing with the franchise.

  • Look at other analogues for foreign firms/foreign cultures doing well in North America: the Nissan Design Center, started in 1979 pops out for me. These types of places have figured out ways to capture the positives of creative, entrepreneurial employees without stifling them.

  • Pick the brains of local folks like SRI management Curtis Carlson and Walter Moos. Granted the funding source makes it a very different business model but they know a thing our two about running an innovation machine that has been around for awhile.

  • Read some of the stuff put out by former Carnegie Mellon professor Richard Florida . Straightforward premise: the settings that attract and keep those that are creative and innovative have certain predictable attributes – make sure you keep them in place in South San Francisco.

Good luck with the Genentech acquisition and integration work. History is filled with large companies that practice religion at the Church of De Nile where the central tenet is that I’m too successful and big to worry. Just ask GM and Leman Brothers (I know, different businesses again but you get the picture.)


J. Mike Smith, President and Principal, Back West, Inc.

San Francisco, California
+1 415 641 1242    jmike@backwest.com
http://backwest.com Blog