3. Reasons of Acquisition
Increase Roche’s market power
Help Roche to overcome entry barriers of biotech industry
Reduce Roche’s financial and operational risk
4. General Environment
• Financial crisis happened in 2008Economic
• Less affected by the economic environmentIndustrial
• Large-scale, international firm has advantage in marketingGlobal
• Innovation is the key of success for pharmaceutical industryTechnological
• Obama’s health care billPolitical
5. Porter’s Five Force
Competitive
Rivalry
Threat of
Substitute
Buyer
Power
Threat
of New
Entry
Supplier
Power
• Often not direct competitors due to
FDA patents
• Advantage in sales and marketing
• Heavily depends on
the functions of the
products
• Firms are able to produce
their own protein structure
• Significant barriers: regulation,
experience, capital-related issue
• Consumer will purchase drugs
despite economic condition
• “life-saving drugs”
6. SWOT Analysis (Genentech)
STRENGTH
Barrier of market entry; Large market share;
Pricing advantage; Lots of star scientists;
Vertically integrated .....
WEAKNESS
Bad marketing strategies
Unknown future profitability
OPPORTUNITIES
Profitability from the development
of cancer-curing drug
THREATS
Drug price drop for patent expiration
Competitive market
Risk of future lawsuit
7. Discount Cash Flow Analysis
Using both growth rate method and multiple method:
Revenue Growth Rate = 14% (starting 2009 and decrease 2% every year after)
Industrial Average Beta = 0.64
Estimated Discount Rate = 6.89%
Tax Rate = 35%
Calculated an average EV value of $104 billion for Genentech.
8. Synergies Analysis
Cut Cost
• Significantly reduce the cost in the area of manufacturing,
marketing & distribution, and G&A expenses
Create New Opportunities
• Create new opportunities and bring Genentech’s market to a
worldwide scale.
Genentech Gain Stable Financing Source
• Ability to put in more resources on R&D; further assure growth
11. $50 $60 $70 $80 $90 $100 $110 $120
Precedent Transaction Analysis
Comparable Company Analysis
DCF Analysis
DCF Analysis with Synergies
“Football Field” Chart
The estimated Enterprise Value for Genentech should be $107 billion.
18. Appendix E: Genentech’s Balance Sheet
CONSOLIDATED STATEMENTS OF INCOME
($'In millions, except per share amounts)
Year Ended December
31,2008
REVENUE
Product sales 10,531
Royalties 2539
Contract revenue 348
TOTAL OPERATING REVENUE 13,418
COSTS AND EXPENSES
Cost of sales 1744
Research and development 2800
Marketing, general and administrative 2405
Collaboration profit sharing 1228
Write-off of in-process research and development related
to acquisition
0
Gain on acquisition 0
Recurring amortization charges related to redemption and
acquisition
172
Special items: litigation-related -260
TOTAL COSTS AND EXPENSES 8089
OPERATING INCOME 5,329
OTHER INCOME (EXPENSE): 102
INCOME BEFORE TAXES 5,431
INCOME TAX PROVISION 2004
NET
INCOME
3,427
CONSOLIDATED BALANCE SHEETS
($'In millions, except par value)
December 31,2008
ASSETS
Cash and cash equivalents 4533
Short-term investments 1665
Accounts receivable—product sales 1039
Accounts receivable—royalties 680
Accounts receivable—other 222
Inventories 1299
Deferred tax assets 500
Prepaid expenses and other current assets 135
Total current assets 10073
LONG-TERM MARKETABLE DEBT AND EQUITY
SECURITIES
3347
PROPERTY, PLANT AND
EQUIPMENT, NET
5404
GOODWILL 1590
OTHER
INTANGIBLE
ASSETS
1008
OTHER LONG-
TERM ASSETS
365
TOTAL
ASSETS
21787
19. Appendix F: SWOT Analysis (Roche)
STRENGTH
A world leading company; Easy overseas
market expansion; Diversified products;
Financial health & innovation culture
WEAKNESS
R&D outsourced - no patent
Large G&A spending
OPPORTUNITIES
Higher expectation of sales
Mandatory healthcare program
THREATS
Financial crisis in 2008
Huge R&D spending with unknown return
Risk of future lawsuit
Entry of new companies
