Erbitux, Rebif, and four veteran brands in as many therapeutic areas may offer diversity, but they lack synergy, as analysts
noted when the deal was inked. That may be why Schnee is careful to frame it as "not a scale or size merger, but a knowledge
and capability merger. Our two companies are complementary, and together create one that in the midsize arena has world-class
knowledge in biotech and small molecules." For example, EMD Serono's high-tech know-how can ramp up drug discovery while its
manufacturing muscle can pump out batches of Erbitux.
Amerger's chance for success is often said to lie in the quality of the ensuing integration, which can be as artless as a
wrecking ball or as precise as a tango. "It can often seem," says Michael Rosen, president of Rosen Bioscience Management,
"like a battle of two people trying to impose their will on their partner until they finally meld together to form this couple
performing in unison."
In their own tango, Merck KGaA leads and Serono follows—and that's how Schnee prefers it. "You have to give a clear vision
very fast to the new company because you have people coming from two different cultures," he says.
The official Merck–Serono consolidation took place in January, complete with fresh faces at the top, including Schnee as CEO
and a new CFO. A Merck KGaA board member was put in charge of the integration process, with its 25 teams of some 170 "integration
managers." The company began by surveying 7,500 employees. From this, Schnee learned, not surprisingly, that "despite their
differences, the Merck KGaA and Serono cultures share certain values: teamwork, excellence, creativity, innovation, customer
That bodes well for a harmonious tango, especially because Schnee prioritizes "the soft factor." "An integration is decided
by the humans, how they cooperate and communicate, how teamwork is built up," he says. "I do not think success depends on,
say, how fast you get your rep network together on the road."
Still, Schnee moved fast to start paying down the debt incurred in the merger. In May, the firm sold its generic pharmaceutical
division, which accounted for 29 percent of its 2006 sales, to Mylan Labs for a steep $6.7 billion. Merck Serono immediately
rebounded to its pre-merger price, but analysts were already demanding results from the pipeline. "The easy money has been
made,'' said Andrew Fellows, of London's Helvea. "My concern is their ability to grow that whole pharma business. There is
still high dependence on the old Serono products."
Bruckner Group partner Michael Russo casts a cold, if wry, eye on many pharma mergers, which often begin with industry-conquering
bravado only to fall victim to their own fantasies of size. "Acquiring Serono buys them time to get that billion-dollar pipeline
they like to boast about moving."
Whether Merck Serono will have the time it needs to turn on productivity and stave off predators remains to be seen. Over
the next 12 months, all eyes will be on the biopharma's much-touted oncology franchise. A full-court press to expand the indications
of Erbitux is a top priority. Phase III trials have had mixed results—positive in metastatic colorectal and head and neck
cancers; negative in pancreatic cancer; and equivocal (but ongoing) in non-small-cell lung cancer. As Erbitux developer and
marketer outside North America, Merck Serono is testing its EGFR inhibitor against an array of new targets, including breast
cancer and gastric cancer.
But the biopharma is not staking the farm on its single breakthrough cancer drug. Erbitux faces increasingly tight competition
from Genentech's Avastin and Amgen's Vectibix. Plus, with a price tag of $10,000 a month, says Michael Russo, "Erbitux is
the poster child for new super-priced cancer drugs that add a few weeks to your life." Russo also notes that with the large-cap
pharmas all rushing to invest in oncology, better drugs are just around the corner, and the high price/low benefit ratio is
bound to improve. These advances could lock Erbitux out of the market.