Switzerland''s biggest drugs company, Novartis, announced the acquisition of a 20 per cent stake in the voting shares of Roche Pharmaceuticals for an estimated SFr 4.83 billion. This step is widely seen as the first step towards a complete takeover of the latter.

The hundred-year old Roche is controlled by the Hoffmann and Oeri-Hoffmann families, who between them hold 50.1 per cent of the bearer shares under the company’s dual share structure.

Novartis purchased the shares from BZ Group Holdings, a Swiss finance company owned by the redoubtable Martin Ebner who has been fighting a bid for a seat on the Roche board. Ebner has been campaigning for sometime to bring reform in the ownership structure of Roche. Novartis''s stake represents about 3.7 per cent of Roche''s issued securities, including the non-voting securities.

With several of its drugs dropping out of its pipeline, Roche has been facing a disastrous few years. This has been compounded by the fact that its new drug policy has failed to take off. Even sales of Xenical, the anti-obesity drug that many thought could bail Roche out of trouble, have stalled. A good performance put in by its diagnostics division has kept the company afloat so far.

Novartis, created by the merger of Ciba and Sandoz, on the other hand has been faring very well under its chief executive, Dan Vasella who has initiated several measures to bring in accounting transparency and production efficiencies into the system.

While the immediate reaction of Roche to the Novartis acquisition has been one of caution, there is no doubt that the acquisition will put pressure on the Hoffmann families to perform and deliver results. There has been growing speculation over the last 18 months that Roche might be forced into a defensive merger like that between Ciba and Sandoz to enable it to continue to compete at the top of the world pharmaceutical industry. However, Novartis''s emergence as Roche''s second biggest shareholder means that it would be impossible for Roche to mount a cross border merger without Novartis''s approval.

The two Swiss companies are complementary in terms of the drugs they sell, but both would benefit from greater exposure to the fast-growing US market.