Consolidate pRED and gRED R&D units? ‘No way,’ says Roche CEO

Roche CEO
Roche CEO Severin Schwan believes the company's diversified R&D structure is a key ingredient to its success. (Roche)

Like just about all its peers in the pharma sector, Roche has been trying to find ways to reduce the costs of R&D—but CEO Severin Schwan won’t contemplate doing so by consolidating its Swiss-led research operations with those of subsidiary Genentech.

In fact, such a thing would only occur “over my dead body,” Schwan told analysts during a recent get-together with Bernstein, saying that without the current separation, the company would not be sitting on the pipeline it has today.

When Roche acquired Genentech almost a decade ago, it left the U.S. biotech’s research and early development (dubbed gRED) in South San Francisco intact to preserve its structure, culture and infrastructure—and independent of its own analogous Roche pharma (pRED) unit. That now operates largely out of Switzerland, since Roche’s New Jersey site was shut down a few years ago.

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It proved to be a sensible ploy. Genentech has delivered a string of new products and candidates in the interim, overshadowing the output of pRED, which was hit by several drug failures, although it did generate Gazyva—a follow-up to cancer blockbuster Rituxan that so far has seen sluggish sales growth.

Schwan told Reuters recently however that he thought that pRED is poised to bounce back with drugs such as bispecific antibody CEA-TCB for cancer, a follow-up to eye disease drug Lucentis, idasunutlin for acute myeloid leukemia and an autism drug in midstage trials.

That’s not to say that consolidation didn’t happen between Genentech and Roche, as nearly all other functions were either shut down or integrated, according to the CEO. For instance, within R&D, it made sense to run global development from one location—San Francisco. But Schwan told Bernstein that the diversified R&D structure, which also sees Chugai operating largely independently in Japan, is a key ingredient in Roche’s R&D success.

He's entirely convinced that if gRED and pRED were put under one leadership and streamlined, they would lose a lot of their culture and diversity of thinking, which ultimately would be very harmful for company innovation,” the analysts wrote in a research note.

That’s not to say there aren’t areas where R&D productivity can be improved, they noted. The company could do better when it comes to data management, and particularly sharing data across business units, to improve productivity and efficiency.

[Roche] has talked a lot about leveraging real-world data, but it starts with sharing your own data from your own clinical trials too. So, they're doing both in parallel,” according to Bernstein.

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