Merck KGaA Launches Merck Serono SA and Plans to Divest Generics Business

Darmstadt Germany (Jan. 8)-Merck KGaA (www.merck.de) closed on its roughly CHF 16.6 billion ($13.3 billion)  deal to acquire a majority stake in the European biotechnology company Serono (Geneva, Switzerland, www.serono.com), officially launched Merck Serono SA as a new entity within Merck KGaA, outlined its integration strategy, and announced plans to divest its generics business.

The integration of Serono provides Merck KGaA with a biopharmaceutical products portfolio with 2005 pro forma sales of around EUR 3.6 billion ($4.7 billion) and about 14,500 employees worldwide.

Merck Serono S.A. will be combined with the current Merck Ethicals division and operate a division (headquartered in Geneva) of Merck KGaA's pharmaceuticals business. In the United States, the business will operate under the name EMD Serono.

 “With the combined innovative power of two strong companies, we have the unique opportunity to create a superb union of pharmaceutical chemistry and biotechnology,” said Elmar Schnee, new CEO of Merck Serono S.A, in a prepared statement. “We want to utilize the best of both companies. A total of 28 projects in clinical development, a combined R&D budget of approximately EUR 1 billion, and the two key growth drivers, “Erbitux” for oncology and “Rebif” for the treatment of multiple sclerosis, give us the best foundations for a successful future.”

In addition to becoming CEO of Merck Serono S.A., Schnee was also appointed as member of the executive board of Merck KGaA. Olaf Klinger was appointed chief financial officer of Merck Serono S.A, and.François Naef, chief administrative officer.

Company outlines integration plan

Following a planning phase, 25 teams consisting of about 170 integration managers will implement the integration processes throughout the company. The project will be led by an Integration Steering Committee, headed by Karl-Ludwig Kley, vice-chairman of the executive board of Merck KGaA.

The Executive Management Board of the Merck Serono division will consist of executives from both companies. It includes Elmar Schnee (CEO), Franck Latrille (deputy head, development, international), Roland Baumann (strategy, management process & compliance), Vincent Aurentz (business development, portfolio management), Bernhard Kirschbaum (research), Richard Douge (marketing), Wolfgang Wein (oncology), Roberto Gradnik (Europe), Fereydoun Firouz (United States),  Hanns-Eberhard Erle (production), François Naef (human resources), and Dorothea Wenzel (controlling).

In the first quarter of 2007, Merck plans to conduct a capital increase of EUR 2–2.5 billion ($2.6–3.2 billion) to refinance the Serono takeover. In addition, a bond is planned to be issued in the second half of the year.

Globally, Merck Serono will operate under the new name and with a new logo, and pharmaceutical packaging will also be changed to the new design in the coming months and years.

Erbitux production to be consolidated in Corsier-sur-Vevey

For efficiency reasons, the planned production facility for “Erbitux” (cetuximab) will be consolidated in Corsier-sur-Vevey, Switzerland. Merck says it will continue to invest in its pharmaceuticals and chemicals business sectors at headquarters in Darmstadt.

Merck KGaA explores divesture of its generics business

Merck KGaA also announced that it is evaluating the divestiture of its generics division (Merck Generics). The company said in a prepared statement that it is not yet engaged in initial discussions with any potential buyers.

Merck says its generics business ranks third in the world. Merck Generics reported 2005 sales of EUR 1.8 billion ($2.3 billion) and operating revenue of EUR 238 million ($309 million). The division employs roughly 5,000 people worldwide.

“Merck Generics has a strong business with excellent leadership and good growth prospects for the future. However, it will need continued investment to fully realize its potential and strengthen its market presence,” said Michael Roemer, chairman of the executive board of Merck KGaA, in a company release. “In light of the far-reaching changes occurring in the market, we are considering as an option the divestiture of Merck Generics to a qualified buyer.”