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Roche's Acquisition of Genentech

Harvard Business School Case 9-210-040
Courseware 211-706

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1
Forecasted Financial Data and Ratios, adapted from case Exhibit 11

NFM 2009 2010 2011 2012 2013 2014

Forecast End 2024

Terminal Growth 3.0%
Tax Rate 30.7%
Equity Compensation 11,420
Opt-In Rights 8,190

Net Sales 14,344 14,344 15,334 16,392 17,523 18,732 20,024

% growth 6.9% 6.9% 6.9% 6.9% 6.9% 6.9%

R&D (Incl Depreciation) 2,854 3,051 3,262 3,487 3,728 3,985

% of sales 19.9% 19.9% 19.9% 19.9% 19.9% 19.9% 19.9%

Other Costs (Incl Depreciation) 4,647 4,968 5,311 5,677 6,069 6,488
% of sales 32.4% 32.4% 32.4% 32.4% 32.4% 32.4% 32.4%

EBIT 6,842 7,314 7,819 8,358 8,935 9,552

% of sales 47.7% 47.7% 47.7% 47.7% 47.7% 47.7%

Depreciation 416 445 475 508 543 581

% of sales 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9%

Capex 445 475 508 543 581 621

% of sales 3.1% 3.1% 3.1% 3.1% 3.1% 3.1% 3.1%

Working Capital Investment 100 107 115 123 131 140

% of sales 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7%

Equity Compensation - - - - - - -
% of sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Source: Adapted from Carliss Baldwin, Bo Becker, and Vincent Dessain, "Roche's Acquisition of Genentech",
HBS no. 210-040 (Boston: Harvard Business Publishing, 2010), Exhibit 11, page 25.
 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

21,406 22,883 24,462 26,150 27,954 29,883 31,945 34,149 36,505 39,024
6.9% 6.9% 6.9% 6.9% 6.9% 6.9% 6.9% 6.9% 6.9% 6.9%

4,260 4,554 4,868 5,204 5,563 5,947 6,357 6,796 7,265 7,766
19.9% 19.9% 19.9% 19.9% 19.9% 19.9% 19.9% 19.9% 19.9% 19.9%

6,936 7,414 7,926 8,473 9,057 9,682 10,350 11,064 11,828 12,644
32.4% 32.4% 32.4% 32.4% 32.4% 32.4% 32.4% 32.4% 32.4% 32.4%

10,211 10,915 11,668 12,473 13,334 14,254 15,238 16,289 17,413 18,615
47.7% 47.7% 47.7% 47.7% 47.7% 47.7% 47.7% 47.7% 47.7% 47.7%

621 664 709 758 811 867 926 990 1,059 1,132
2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9%

664 709 758 811 867 926 990 1,059 1,132 1,210
3.1% 3.1% 3.1% 3.1% 3.1% 3.1% 3.1% 3.1% 3.1% 3.1%

150 160 171 183 196 209 224 239 256 273
0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7%

- - - - - - - - - -
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Genentech",
LRP NFM 1
2
2,018 2,024 3
2.0% 3.0% 4
35.0% 30.7% 5
- 11,420 6
- 8,190 7
8
13,535 14,344 9
7.0% 6.9% 10
11
12
18.5% 19.9% 13
14
15
33.6% 32.4% 16
17
18
19
20
21
3.3% 2.9% 22
23
24
3.9% 3.1% 25
26
27
1.3% 0.7% 28
29
1,567 - 30
1.3% 0.0% 31
Forecasted Financial Data and Ratios, adapted from case Exhibit 11

LRP 2009 2010 2011 2012 2013

Forecast End 2018

Terminal Growth 2.0%
Tax Rate 35.0%
Equity Compensation -
Opt-In Rights -
WACC 9%

Net Sales 13,535 13,535 14,482 15,496 16,581 17,742

% growth 7.0% 7.0% 7.0% 7.0% 7.0%

R&D (Incl Depreciation) 2,504 2,679 2,867 3,067 3,282

% of sales 18.5% 18.5% 18.5% 18.5% 18.5% 18.5%

Other Costs (Incl Depreciation) 4,548 4,866 5,207 5,571 5,961

% of sales 33.6% 33.6% 33.6% 33.6% 33.6% 33.6%

EBIT 6,483 6,937 7,423 7,942 8,498

% of sales 47.9% 47.9% 47.9% 47.9% 47.9%

Depreciation 447 478 511 547 585

% of sales 3.3% 3.3% 3.3% 3.3% 3.3% 3.3%

Capex 528 565 604 647 692

% of sales 3.9% 3.9% 3.9% 3.9% 3.9% 3.9%

Working Capital Investment 176 188 201 216 231

% of sales 1.3% 1.3% 1.3% 1.3% 1.3% 1.3%

Equity Compensation 1,567 1,567 188 201 216 231

% of sales 1.3% 1.3% 1.3% 1.3% 1.3%

EBIT 6,483 6,937 7,423 7,942 8,498

NOPAT 4,214.12 4,509.11 4,824.75 5,162.48 5,523.85
Add depreciation 447 478 511 547 585
Less Capex 528 565 604 647 692
Less Increase in NWC 176 188 201 216 231
FCFF 3,957 4,234 4,530 4,847 5,187
NPV ₹ 33,446.97
Terminal Value 106,002.84
PV of Terminal value 44776.743968
EV ₹ 78,223.72
Value of Equity ₹ 84,939.72
Value per Share ₹ 80.66
 2014 2015 2016 2017 2018

18,984 20,312 21,734 23,256 24,884

7.0% 7.0% 7.0% 7.0% 7.0%

3,512 3,758 4,021 4,302 4,603

18.5% 18.5% 18.5% 18.5% 18.5%

6,378 6,825 7,303 7,814 8,361

33.6% 33.6% 33.6% 33.6% 33.6%

9,093 9,730 10,411 11,139 11,919

47.9% 47.9% 47.9% 47.9% 47.9%

626 670 717 767 821

3.3% 3.3% 3.3% 3.3% 3.3%

740 792 848 907 970

3.9% 3.9% 3.9% 3.9% 3.9%

247 264 283 302 323

1.3% 1.3% 1.3% 1.3% 1.3%

247 264 283 302 323

1.3% 1.3% 1.3% 1.3% 1.3%

9,093 9,730 10,411 11,139 11,919

5,910.52 6,324.26 6,766.96 7,240.65 7,747.49
626 670 717 767 821
740 792 848 907 970
247 264 283 302 323
5,550 5,938 6,354 6,799 7,275
Forecasted Financial Data and Ratios, adapted from case Exhibit 11

NFM 2009 2010 2011 2012 2013 2014

Forecast End 2024

Terminal Growth 3.0%
Tax Rate 30.7%
Equity Compensation 11,420
Opt-In Rights 8,190
WACC 9%

Net Sales 14,344 14,344 15,334 16,392 17,523 18,732 20,024

% growth 6.9% 6.9% 6.9% 6.9% 6.9% 6.9%

R&D (Incl Depreciation) 2,854 3,051 3,262 3,487 3,728 3,985

% of sales 19.9% 19.9% 19.9% 19.9% 19.9% 19.9% 19.9%

Other Costs (Incl Depreciation) 4,647 4,968 5,311 5,677 6,069 6,488
% of sales 32.4% 32.4% 32.4% 32.4% 32.4% 32.4% 32.4%

EBIT 6,842 7,314 7,819 8,358 8,935 9,552

% of sales 47.7% 47.7% 47.7% 47.7% 47.7% 47.7%

Depreciation 416 445 475 508 543 581

% of sales 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9%

Capex 445 475 508 543 581 621

% of sales 3.1% 3.1% 3.1% 3.1% 3.1% 3.1% 3.1%

Working Capital Investment 100 107 115 123 131 140

% of sales 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7%

Equity Compensation - - - - - - -
% of sales 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

EBIT 6,842 7,314 7,819 8,358 8,935 9,552

NOPAT 4,741.57 5,068.74 5,418.48 5,792.35 6,192.03 6,619.27
Add depreciation 416 445 475 508 543 581
Less Capex 445 475 508 543 581 621
Less Increase in NWC 100 107 115 123 131 140
FCFF 4,612 4,931 5,271 5,635 6,023 6,439
NPV ₹ 58,749.76
Terminal Value 215,419.59
PV of Terminal value 59,140.87
EV ₹ 117,890.64
Value of Equity ₹ 124,606.64
Value per Share ₹ 118.33
 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

21,406 22,883 24,462 26,150 27,954 29,883 31,945 34,149 36,505 39,024
6.9% 6.9% 6.9% 6.9% 6.9% 6.9% 6.9% 6.9% 6.9% 6.9%

4,260 4,554 4,868 5,204 5,563 5,947 6,357 6,796 7,265 7,766
19.9% 19.9% 19.9% 19.9% 19.9% 19.9% 19.9% 19.9% 19.9% 19.9%

6,936 7,414 7,926 8,473 9,057 9,682 10,350 11,064 11,828 12,644
32.4% 32.4% 32.4% 32.4% 32.4% 32.4% 32.4% 32.4% 32.4% 32.4%

10,211 10,915 11,668 12,473 13,334 14,254 15,238 16,289 17,413 18,615
47.7% 47.7% 47.7% 47.7% 47.7% 47.7% 47.7% 47.7% 47.7% 47.7%

621 664 709 758 811 867 926 990 1,059 1,132
2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9%

664 709 758 811 867 926 990 1,059 1,132 1,210
3.1% 3.1% 3.1% 3.1% 3.1% 3.1% 3.1% 3.1% 3.1% 3.1%

150 160 171 183 196 209 224 239 256 273
0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7%

- - - - - - - - - -
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

10,211 10,915 11,668 12,473 13,334 14,254 15,238 16,289 17,413 18,615
7,076.00 7,564.25 8,086.18 8,644.13 9,240.57 9,878.17 10,559.77 11,288.39 12,067.29 12,899.93
621 664 709 758 811 867 926 990 1,059 1,132
664 709 758 811 867 926 990 1,059 1,132 1,210
150 160 171 183 196 209 224 239 256 273
6,883 7,358 7,866 8,409 8,989 9,609 10,272 10,981 11,739 12,549