In an all-German tug-of-war, Merck KGaA first tried for a hostile takeover of Schering AG, but it was outbid by Bayer. Still, it persisted with "a last-minute attempt to snatch back Schering from under Bayer's nose," according to Global Insights. "[This] left players on the German pharma market wary of its tactics, and most probably persuaded it to look elsewhere in Europe for a suitable target." It was at that point that Merck KGaA looked over the Alps to Serono, with its one foot in Geneva and the other near Boston.

The Swiss biotech was nursing a rejection of its own: CEO Ernesto Bertarelli, whose family was a majority shareholder, had decided to put Serono on the block—but no large-cap pharma was buying. Its dashing yachtsman-cum-executive had boosted the bottom line with the development of Rebif for relapsing multiple sclerosis. But once again, the lack of a follow-up blockbuster—coupled with $704 million in fines and a guilty plea to fraud for illegally inducing doctors to prescribe Serostim, its growth hormone for AIDS wasting—had sent Serono's fortunes south.

Rumors were also rife that Bertarelli's sailing ambitions—he and his Team Alinghi won the America's Cup in 2003—had taken a toll on mission and morale. A Pharm Exec source who asked not to be identified recalled seeing Serono headquarters decked with pennants, streamers, and other paraphernalia celebrating an upcoming America's Cup. "I'd never seen anything so crass—or confusing—at a drug company before," he says. "When I found out it was about getting employees excited about the America's Cup—well, no wonder Serono was up for sale."

Schnee crisply ticks off for me the five criteria Merck KGaA was looking for in a partner. First, there was R&D critical mass. "Second, we wanted a commercial base in the United States—that was very important," he says. "We had sales there in our generics but not in our branded business." The US market, of course, accounts for more than half of all global sales and is growing at 8 percent; by contrast, the European Union's is half the size, half the growth. In that sense, Merck KGaA had the worst of both worlds; the German market's famously harsh price controls only added insult to injury. Boston-based Serono boasted $800 million in US sales and an 850-person sales force nationwide.

"Third, we have one area focused to specialists—Erbitux, a great success," Schnee says. "But we cannot compete in the primary-care market, so we needed to strengthen our specialty products and pipeline, especially in oncology." Merck KGaA's immediate about-face—turning its attention from Schering AG to Serono—revealed its shrewd appreciation of the moment.

The fourth goal was extending its global footprint, with a special focus on Japan, which has the world's second-biggest market—and a soaring rate of poorly treated cancer. Serono, with its 40 subsidiaries worldwide, fit the bill.

Schnee's final criteria was "diversity in therapeutic areas." Merck KGaA's branded portfolio is, to put it politely, mature: Only Erbitux is on its way up, while only its Concor cardio franchise has depth. Glucophage, the top-selling type 2 diabetes drug, has lost ground to generic rivals.

Likewise, Serono has one big-shot sales driver: Rebif, which delivered slightly more than half of the company's $2.5 billion in global sales last year. But Serono also boasts an impressive recombinant-technology platform; it has developed a franchise in metabolic endocrinology, including Serostim and Raptiva, a monoclonal antibody for psoriasis. However, fertility treatments are what first put Serono on the map, and the biotech is justly admired for its global leadership.