Creative Destruction in Biotechnology

For all the talk of the numerous biotechnology companies with mere months of cash left and the predictions of looming liquidations, mergers, and acquisitions, it is important to note that a measure of destruction can benefit industry progress.

Economy Joseph Schumpeter coined a term for industrial progress through destruction: creative destruction. In this process, growth occurs by the development of new companies, which develop new innovations and replace older companies.

Even mergers and acquisitions can drive progress, as they free seasoned executives from their former jobs. The story of Hybritech’s key role in the development of the San Diego biotechnology cluster is a case study of this kind of growth:

Creative Destruction: Hybritech's role in building the San Diego Biotechnology Cluster

Source: Building Biotechnology

So, while the process of creative destruction may be painful for those who are employees or investors in the destroyed companies, it is a natural element of business cycles, and an essential part of driving progress.

Roche and Genentech's mating dance — This isn't the first time

Roche has floated an offer to acquire Genentech, a move which has raised a flurry of questions about the sustainability of the big Pharma business model, Genentech’s future independence, and the value of Genentech. It it worth noting, however, that Roche already bought (and sold) Genentech. Using an excerpt from Building Biotechnology to illustrate, Roche pocketed several billion dollars the last time it bought and sold Genentech over a six-week period in 1999:

Source: Building Biotechnology

So, the question must be asked: Despite Roche’s announced plans to include Genentech as an independent research entity, is this transaction simply based on a weak U.S. dollar and an undervalued Genentech? Might they just flip Genentech again?