Acquisitions to solve weak Roche pipeline?

Roche of Switzerland appears to be hitting the buffers of late, afterenjoying a run of high stock value during 1995-2000. The value of the firm's ordinary shares has fallen 10% in the past year and is hovering around 16,120 Swiss francs ($10,028) at present, amid fears that its pipeline over the next two-three years shows little promise. The only new drug expected to be launched in 2001 is Pegasys (peginterferon alfa-2b) for the treatment of chronic hepatitis C, which is expected to generate sales of 1 billion francs annually, while in 2003-2004 the rate of new compounds is not likely to rise much above this level.

It is within such an atmosphere that rumors are circulating of Schering AG being a takeover target for Roche. Both firms declined to comment on the speculation but some observers believe that the latter is ripe for a takeover. Michael Butscher, an analyst at Merck, Finck & Co in Munich, told Reuters that there is no big shareholder behind Schering "so the timing would be excellent."

However, Swiss drug industry sources suggest that Roche may well give priority to a US takeover, as a stronger role in the world's major drug market is now the priority of almost every European drug company. The Zurich sources indicate that Schering has too little critical mass to contribute and its product range is well outside the Swiss firm's core product focus. Financially, Roche remains in a good position to make acquisitions, with estimated net liquidity of about 5 billion francs, and there is also speculation that the company may sell off its vitamins business.