Merck KGaA's acquisition of Swiss drug maker Serono will give the German company its first commercial foothold in the U.S. pharmaceutical market. Merck announced Sept. 21 that it has signed an agreement with Serono's majority stakeholders, the Bertarelli family, to acquire their 64.5% share of capital in the company.

"Up to now, Merck has not been independent in the American market," Merck's Pharmaceutical Head Elmar Schnee said during a same-day conference call. "We are very gratified that we now succeeded in having a very performance-oriented organization in the U.S., which will permit us to launch our products coming from research in an efficient way in the American market."

The addition of Serono will provide Merck with a sales, marketing and distribution team of 523 employees in the U.S., the firm said. The U.S. operation will continue to be based in Boston.

"It is absolutely essential for our success that we now have a basis there on which we can build," Schnee said of the U.S. market.

Under the merger, Merck will also create a new division called Merck-Serono Biopharmaceuticals that will be based at Serono's headquarters in Geneva, while Merck's remaining pharmaceutical businesses - generics and consumer health care - and its chemicals unit will continue to be based in Darmstadt, Germany.

After acquiring the Bertarelli family's stake in Serono, Merck will hold a 64.5% share of capital and 75.5% of voting rights for which it will pay CHF 1,100 ($877) per share. Merck will make a tender offer for the remaining shares of the company at the same price, for a total value of CHF 16.6 bil. ($13.27 bil.), the firm said.

The offer represents a 20% premium over the share price of Serono Sept. 20.

The acquisition follows Merck's failed bid to acquire Schering AG, which was bought instead by Bayer (¹ Also see "Schering Integration On Track, Bayer CEO Says" - Pink Sheet, 29 August, 2006.). It also comes after the Bertarelli family announced a strategic shift directing Serono to look for acquisitions instead of a buyer (² Also see "Serono Looks To Acquire Rather Than Be Acquired" - Pink Sheet, 14 April, 2006.).

However, Serono CEO Ernesto Bertarelli said the decision to sell to Merck does not reflect a change in strategy.

"I think there is a striking consistency to the strategy I have been pursuing, and that strategy is to try to create size in order to be competitive in the global market," he said. "For me, the most important thing is where is it that you want to go. Does it matter if you travel by car, by plane or by bicycle? Clearly not if you get where you want to be."

Merck Executive Board Chairman Michael Roemer said the move is not a cost savings-driven acquisition, but rather an opportunity to drive value and create size to compete in the global market.

The combined organization will have product sales of roughly €7.7 bil. ($9.79 bil.), based on 2005 results. Merck-Serono Biopharmaceuticals would have sales of €3.6 bil. ($4.58 bil.), giving it a leading position in the world, the firm said.

According to Merck, the combined companies would have a strong position in biologics, with sales of €1.6 ($2.04 bil.), ranking number six in the world behind Amgen, Roche/Genentech, Johnson & Johnson, Novo Nordisk and Eli Lilly, if biologic sales are broken out from those firms.

Serono's leading product is the multiple sclerosis blockbuster Rebif (interferon beta-1a), with sales of €1 bil. ($1.29 bil.) in 2005. The companies remaining portfolio is focused on reproductive health, dermatology, and growth and metabolism with treatments like Gonal-f (follitropin alfa), the psoriasis drug Raptiva (efalizumab) and the growth hormone Saizen (somatropin [rDNA origin]).

The products will complement rather than overlap with Merck's pharmaceutical portfolio; its top-selling products include the beta blocker Concor (bisoprolol), the metformin Glucophage , marketed by Bristol-Myers Squibb in the U.S., and the oncologic Erbitux (cetuximab), which Merck markets outside the U.S.

Merck's desire to gain access to new products may have been impacted by sarizotan, a Phase III compound for Parkinson's disease-related dyskinesia that Merck terminated following disappointing study results (³ Also see "Merck KGaA Drops Parkinson’s Treatment Sarizotan" - Pink Sheet, 23 June, 2006.).

The combined company will have 28 molecules in development, Merck said, including Serono's investigational oncology drugs.

-Jessica Merrill (j.merrill@elsevier.com)

Merck KGaA Buys Serono, Gaining U.S. Commercial Organization

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