Genentech: Advantaged In The Middle
During Art Levinson's five-year tenure as CEO, Genentech has enjoyed its greatest period of commercial success. To get there, the company jump-started its pipeline by pouring huge sums into R&D. It was able to do so, in part, because of a put/call provision contained in its agreement with majority stakeholder Roche that, by setting a floor and a ceiling on share prices, insulated it from the usual market pressures to demonstrate earnings growth. With that protection now gone, and having given Roche an option on worldwide rights for its products, Genentech must either increase the productivity of an already impressive R&D operation or for the first time look to M&A to grow earnings, in order to achieve its goal of a five-fold sales increase by 2005. Still, Genentech's recent successes make a solid case for the viability of mid-sized companies and R&D -focused strategies in an era of consolidation.
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