Midcap wake-up call

For years, it has been an open secret that many of Europe's family-owned mid-cap pharmas have been lost at sea, unable to adapt to the new world of innovative in-house R&D and aggressive in-licensing. Merck KGaA and Nycomed Group A/S took some dramatic steps to remedy the situation last week, announcing plans to acquire Serono S.A. and Altana AG's pharma businesses, respectively.

Merck (FSE:MRK, Darmstadt, Germany) already had started playing catch-up several years ago with the acquisition of European rights to ImClone Systems Inc.'s Erbitux cetuximab anti-EGFR antibody, but has had a couple of visible stumbles since then. Other mid-cap players have simply been out of the loop.

With last week's deals, both acquirers are looking to expand both their R&D capabilities and geographic marketing reach. While the benefits of lashing together these commercially minded infrastructures are apparent, the payback from the product development aspirations will take more time to become visible.

Merck's 5 boxes

It was no secret that the targets had put up for sale signs in the past year. Nevertheless, the news that MRK was to pay CHF1,100 ($875) a share - a 20% premium to the previous day's close of CHF915 - for the Bertarelli family's 64.5% stake in Serono (SWX:SEO; SRA, Geneva, Switzerland) and make a public tender offer for the rest of the shares starting in November, caught both the market and SEO's management, employees and partners off guard. The offer values SEO at CHF16.6 billion ($13.2 billion).

Only Ernesto Bertarelli, CEO, deputy chairman, and leading shareholder, was present at the announcement. In Geneva, SEO's headquarters staff deflected requests for interviews.

SEO put itself up for sale last November, hiring Goldman Sachs to help find a buyer. But the plans apparently were abandoned in March, amid rumors that the asking price, north of CHF1250, was more than any of the contenders was willing to pay.

At that point, the market concluded SEO had ambitions to become a predator itself. Indeed, at its 2Q results in July, SEO said it was looking to make acquisitions in the

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