Merck KGAA’s $13 billion acquisition of Serono in 2006 created an unwieldy pharmaceutical organization further hobbled by expensive clinical setbacks. Seven years later, driven by new leadership, it is in the midst of an overdue transformation.
Execs say mid-sized Merck Serono occupies a rare “sweet spot” in the pharmaceutical food chain and point to the company’s lack of a steep patent cliff, a global footprint, and its renewed commitment to creative externalization.
As the company belatedly sets off on a leaner, more focused course, with a restructured and networked approach to R&D, it has increasingly relied on business development to fill its depleted pipeline.
Merck Serono’s place in Merck KGAA’s corporate structure and its 70% family ownership may have impeded a more timely response to its crisis. Now that same insulation could give it the financial flexibility and time to rebuild for a sustainable future.

In 2006, Merck KGAA knew it badly needed to boost its specialty pharmaceutical business, which relied heavily on partial rights to one potential blockbuster oncology asset, Erbitux (cetuximab). That spring it tried to take over compatriot Schering AG, only to be outbid by a friendly Bayer AG. Unbowed – or increasingly restless – in September that year it turned to Serono’s controlling Bertarelli family and quickly brokered a surprise deal that seemed to have the potential to create a mid-sized pharma powerhouse, one with global reach and blockbuster specialty franchises, a diversified therapeutic base, and an honest-to-goodness shot at sustainable growth. (SeeAlso see "European Consolidation: Serious Competition for Big Pharma?" - In Vivo, 1 October, 2006..)

But something went wrong on the road to success.

Serono brought Merck what is still the company’s greatest commercial success (the multiple sclerosis treatment Rebif [interferon beta-1a]), biologics manufacturing capabilities, and a foothold in the important US market. But in the years following the CHF16.6 billion (then valued at $12.9 billion) acquisition, Merck’s pharmaceutical business “failed expensively and slowly” in its R&D pursuits, admits Merck Serono Head of Global Development and Medical, Annalisa Jenkins.

The failure of Merck to fully integrate Serono and create the mid-sized pharma business it paid dearly for the parts to assemble can be chalked up in part to the difficulty of downsizing and reorganizing in Europe. But other tie-ups in Europe – including Bayer-Schering – have fared better thanks in part to solid execution of merger integration.

Jenkins, who joined Merck Serono in 2011 after 15 years at Bristol-Myers Squibb Co., most recently as SVP global medical affairs, notes that following the Serono deal “the company spent a significant amount of resources, about $7 billion, and really had failed to translate that into any meaningful value.” But, she says, Merck Serono was hardly alone in that kind of value destruction. By and large, industry’s appetite for infrastructure and “shots on goal” superseded any attempts to drive efficiency. The companies that avoided this infrastructure dilemma with more targeted, focused deals – BMS was one, she notes – were able to capture value that Merck Serono did not.

Finally in early 2012, six years after the merger that formed the company’s pharmaceuticals division, Merck said it was cutting headcount and reducing costs across all of its business units. Facing heated competition around its key therapeutic assets, weighed down by an unwieldy organization leftover from the Serono deal, and reeling from a raft of clinical and regulatory setbacks that stood out even among industry’s widespread R&D difficulties, Merck Serono was facing the music.

“Historically this company has served investors poorly,” says Andrew Baum, managing director and head of health care at Citi Research (Citi has a ”Neutral” rating on the company’s shares). Merck’s owners (it is publicly traded but majority-held by the Merck family) have always had the goal of balancing short- and long-term value creation, but over much of the past decade, “the company was badly run,” says Baum. “Finally the cost of the disastrous returns on R&D was a stimulus for the board to come in with the broom.”

Jenkins and former Sanofi SVP and Head of European Operations Belen Garijo (now EVP, chief operating officer for Merck Serono), were recruited to the company in mid 2011 by newly minted CEO Stefan Oschmann. Oschmann himself was lured to run Merck Serono and sit on Merck KGAA’s executive management board from Merck & Co. Inc., where he ran emerging markets. They arrived with a remit to drive a new R&D and commercial plan for the company; other key executives, including Susan Herbert, PhD, EVP, head of business development and strategy and Bernard Kirschbaum, PhD, EVP, head of pharmaceutical research and early development, were promoted or repositioned. The company’s consumer health division and its laboratory services, research products, and manufacturing group, Millipore Corp. (now EMD Millipore), also announced new leaders, executives from Novartis AG and Roche, respectively, later that year. (See Exhibit 1.) (Also see Also see "Diversification Fails To Protect Merck KGaA From Industry Pressures" - Pink Sheet, 27 February, 2012..)

In March 2012 the company said it would overhaul its executive compensation schemes – for the first time Merck executives’ incentives would be pegged to the company’s stock price and to the performance of executives’ individual business units. It also pledged more transparency around financial results, with group CFO Mattias Zachert, a financial star who joined Merck in June 2011 from Lanxess, the former Bayer specialty chemicals spin-out, explaining the aim was to allow investors to more easily compare Merck to its peers. In April it announced the closure of Serono’s former Lake Geneva headquarters and with it the elimination of 500 jobs (a further 750 jobs would be moved to Merck Serono sites in Boston and Beijing, or the group’s headquarters in Darmstadt, Germany). (See [A#14120425004].)

As the details of Merck Serono’s R&D and commercial restructuring began to emerge in early 2013 – along with a rejuvenated business development function and a greater reliance on external sources of innovation – the company disclosed some unusual success. Faster than expected implementation of Merck’s “efficiency” program enabled the company to move forward financial targets for 2014 to this year. As of July 15, the company’s shares are up nearly 20% on the year.

But for Merck Serono, those gains, generated in part by the high expectations accompanying new management, could be fleeting. Longer-term success will depend on whether the company can create or access valuable new drugs before its current revenue generators fade away, and whether the cultural changes imposed by the company’s new management can take root fast enough, or even at all. The former inertia and financial opacity of Merck’s corporate structure may have helped to create its pharma company’s current crisis. But that same structure’s financial flexibility and protection may buy Merck Serono the time and resources it needs to claw its way back.

Exhibit 1

New Faces At Merck’s Health Care Businesses

Though some executives from the previous leadership team remain and others have been promoted to Merck’s pharmaceutical executive committee, the past three years have seen significant management transition at Merck Serono and elsewhere within Merck KGAA’s health care businesses.
Stefan Oschmann Member of the executive board of Merck KGAA and Head of Merck’s pharmaceuticals business (including prescription and consumer health)	Oschmann joined Merck Serono in 2011 from Merck & Co. Inc., where he most recently served as president of emerging markets.
Annalisa Jenkins EVP, Head of Global Development and Medical	Jenkins joined Merck Serono in 2011 from BMS, where she was most recently SVP, global medical affairs.
Belen Garijo EVP, COO	Garijo joined Merck Serono from Sanofi in 2011, where she was SVP global operations region Europe and led the integration of Genzyme Corp.
Udit Batra President and CEO, Consumer Health	Batra joined Merck Consumer Health Care in July 2011 from Novartis Vaccines and Diagnostics, where he was most recently head of global public health and market access.
Robert Yates President, Merck Millipore	Yates joined Merck Millipore in September 2011 from Roche, where he led the Life Sciences business.
Mattias Zachert CFO, Merck KGAA	Though Zachert, previously CFO at Lanxess, is not a pharma executive per se, his appointment as CFO of the Merck Group in June 2011 has helped boost the profile and prospects of Merck Serono, according to analysts.

Company reports

The Long Haul

Merck KGAA, founded in 1668, is the oldest pharmaceutical company in the world. About 70% of the company is held by the Merck family, now in its thirteenth generation of ownership. Besides pharmaceuticals the company has consumer health, life sciences tools, and performance materials businesses (the latter of which is driven by revenue from liquid crystals), but at €6.4 billion in 2012 revenue, pharmaceuticals is the group’s largest division, more than 57% of its total revenue.

Merck KGAA has traditionally managed its portfolio of businesses actively. The Serono deal was completed in 2006. [See Deal] In 2007 Merck sold its generic drugs business (Merck Generics Group, at the time the world’s fourth largest generics company) to Mylan NV for €4.9 billion (then $6.7 billion). [See Deal] In 2010, it acquired Millipore in a deal valued at $7.2 billion. [See Deal]

Despite its promise, the combination of Merck’s pharmaceutical business with Serono was problematic early on. The deal was done hastily; Serono’s board – excepting CEO Ernesto Bertarelli – wasn’t even aware of it until it was signed. “We did the deal with the Bertarelli family, not with Serono,” Elmar Schnee, then head of Merck’s pharmaceuticals business said at the time (Schnee left the company at the end of 2010). In a conference call for investors and analysts announcing the deal, Serono executives were absent, likely because they had only just found out that Bertarelli had sold his family’s 64.5% stake in the drugmaker to Merck (at a 20% premium to the previous day’s close). (Merck executed a public tender offer for the remaining Serono shares once the initial deal cleared antitrust hurdles.) Merck management even described its due diligence process as “limited.”

Not long after, the combined company’s R&D and regulatory setbacks began to pile up. (Though even before the Serono acquisition, its most promising pipeline project, sarizotan in Parkinson’s disease, failed in Phase III in June 2006.) Most prominently, in September 2010, European regulators rejected Merck Serono’s biggest hope, the oral MS candidate cladribine, followed shortly by FDA’s rejection in March 2011. (The drug was removed from the smaller markets where it had gained approval – in Russia and Australia – and formally abandoned in June 2011; to some observers, given the drug’s weak efficacy and safety concerns, that seemed years too late.)

Oschmann had indeed joined a company with few near-term pipeline prospects, significant emerging competition for its largest commercial asset, and a bloated infrastructure and cost base. True, Merck Serono had global reach (nearly a third of its revenue comes from emerging markets) and no immediate patent cliff (Rebif loses EU patent protection in 2015 and its US patent expires in 2022), but it remained stubbornly Euro-centric. It was still relatively small among industry’s tier of larger R&D-based pharma companies but nevertheless moved at the plodding pace of a much larger organization, executives and observers say. Process-oriented, it lacked the agility of faster-growing and similarly sized biotech companies. A pipeline review saw further clinical casualties as assets were shelved or returned to partners.

“I was fairly cautious with regard to any short-term pipeline output, but I saw that both the R&D and the commercial model [at Merck-Serono] could be restructured, and that there was a lot of hidden potential in this company,” Oschmann says. Oschmann stresses the transparency exhibited by Merck’s senior management at the corporate level, noting “I was impressed by how openly they described to me the challenges that lay ahead.”

That transparency has been embraced by Oschmann and his senior executive team, who have described the company’s past and present dilemmas and opportunities with unusual openness – a clever strategy that simultaneously manages expectations and projects an attitude of “it can only get better from here.”

Closing the Geneva research hub is in a way symbolic of finally finishing the job of integrating Serono itself (and not without irony: the facility now comes full circle as Ernesto Bertarelli teamed up with fellow Swiss billionaire Hansjörg Wyss to buy the site in June 2013, and the two plan to open a biotech research center there in conjunction with two Geneva universities). The closure process was difficult – there were protests, sit-ins, and strikes. But eventually, intensely negotiated severance terms softened the impact, as did Merck Serono’s plan to fund ex-employee entrepreneurs with plans to create new businesses from shelved Merck Serono assets. The so-called Entrepreneur Partnership Program has thus far supported six new Geneva-based companies. (See Also see "Prexton Therapeutics’ Parkinson’s Assets First to Emerge from Merck KGAA Restructuring" - Pink Sheet, 1 August, 2012..) Merck aimed for €55 million in cost savings in 2012; it more than doubled that goal, producing cost savings of €115 million while growing sales 8%, to €6 billion on the year.

Sales of the company’s biggest drug, Rebif, rose 7.5% to €1.9 billion in 2012. (See Exhibit 2.) But that performance was driven almost entirely by three price increases for the drug in the US (and the price of Rebif in the US has risen at least once already in 2013). This is hardly innovation – and given the fierce competition in the MS market, particularly the strong performance of the newest entrant, Biogen Inc.’s oral Tecfidera (dimethyl fumarate), and recent attempts from payors to clamp down on the MS market, such moves are unlikely to sustain the Rebif franchise much longer. (See Also see "MS Boon: Many Drugs On The Way, But Will Payors Swallow The Cost?" - In Vivo, 23 April, 2012..)

Exhibit 2

Big Earners

In 2012, Merck Serono sales increased 8% to reach €6 billion for the first time. Those sales were driven by a small handful of products.
Drug	2012 Sales (% change over 2011)
Rebif	€1.9 billion (7.5%)
Erbitux	€887 million (1.9%)
Gonal-f	€612 million (12.2%)

Merck KGAA FY 2012 Results

“We Are Done With All That”

Where Merck Serono’s next Rebif will come from remains to be seen. Late-stage clinical trials have continued to disappoint, with the Phase III failures of the cancer vaccine L-BLP25 (f.k.a. Stimuvax) in non-small cell lung cancer and of integrin inhibitor cilengitide in glioblastoma in December 2012 and February 2013, respectively. Even without a late-stage pipeline candidate, the company is still committed to the MS space and declares expertise in CNS, where it continues to perform R&D, largely via partnerships. It also maintains Serono’s strong presence in the fertility market; Merck Serono’s third biggest seller is the recombinant human follicle stimulating hormone Gonal-f (follitropin alfa).

That said, oncology (including the white-hot field of cancer immunotherapy) dominates the company’s R&D budget (about 80% of Merck Serono’s €1.2 billion 2012 R&D spend went to oncology). The company’s mid- and late-stage clinical pipeline does include a few promising if relatively high-risk oncology assets that may someday complement the EGFR inhibitor Erbitux, which Merck Serono sells in Europe, Japan, and a few other markets; these were in-licensed in the years since Oschmann took the reins. But besides L-BLP25, the company only has one Phase III asset in active development that isn’t a line-extension: TH-302, licensed in February 2012 from Threshold Pharmaceuticals Inc.[See Deal] (See Exhibit 3.) (See Also see "Threshold Presses On In Two Phase III Cancer Trials As Competitors Wilt" - Pink Sheet, 29 April, 2013..)

Merck’s pipeline, for better or worse, is now largely a clean slate. During the company’s 2012 annual results call in March, group CEO Karl-Ludwig Kley spelled it out plainly: “We are now starting from a new base, and there are no old products from the old Merck Serono left. We are done with all that.” (See [A#14130307002].)

Exhibit 3

And Then There Were Three

Merck’s clinical setbacks have left few assets in its late-stage pipeline.
Pipeline Candidate	Phase	Description
L-BLP25	Phase III	L-BLP25 (formerly known as Stimuvax) failed a Phase III NSCLC trial (START) in December; however, a post hoc analysis of a predefined subgroup of patients receiving initial concurrent chemoradiotherapy did show significantly greater overall survival benefit. The company is evaluating that data while a second Phase III NSCLC trial, INSPIRE, continues.
Kuvan (sapropterin)	Phase III	Kuvan is marketed for phenylketonuria and related genetic disorders in adults and children at least four years old. Merck Serono is testing it in children under four. (Biomarin holds US rights.)
TH-302	Phase III	Small molecule hypoxia-activated prodrug in pivotal trials for soft tissue sarcoma (STS) and pancreatic cancer.

Company Reports

Networking R&D

Given that void, “we were pretty busy last year,” says Business Development and Strategy Head Susan Herbert, referring to Merck Serono’s ramped-up business development activities. “If you put us up against our peer group we’re on the high end of the scale in terms of some of the larger transactions.” (See Exhibit 4.)

Exhibit 4

Dealmaker: Selected Transactions By Merck Serono Since 2010

Merck has increasingly relied on partnerships to re-establish its clinical pipeline
Partner	Deal
Opexa Pharmaceuticals	In February 2013, Merck Serono paid $5 million for an exclusive option to license Opexa’s secondary progressive multiple sclerosis candidate Tcelna (imilecleucel-T) worldwide, excluding Japan. The personalized T-cell therapy is in Phase IIb; for a fee of up to $25 million, Merck can license the asset at the end of Phase IIb.
Symphogen AS	In September 2012, Merck Serono paid €20 million up front for worldwide development and commercialization rights to Symphogen’s anti-EGFR antibody mixture Sym004, then in Phase I/II studies.
Dr. Reddy’s Laboratories	In June 2012, Merck Serono and Dr. Reddy’s agreed to collaborate on development of a portfolio of biosimilar oncology products.
Threshold Pharmaceuticals	In February 2012, Merck Serono paid $25 million up front for worldwide co-development and commercialization rights to TH-302, a Phase III small molecule cancer treatment. Partner Threshold Pharmaceuticals retains a co-promote option in the US.
Ono Pharmaceutical	In October 2011, Merck Serono paid $19.5 million up front for worldwide rights to ONO-4641, a sphingosine-1-phosphate receptor agonist for multiple sclerosis.
Sanofi	In December 2010, Merck Serono and Sanofi agreed to cross-license early-stage worldwide development rights to a set of each other's Phase I oncology candidates for combination therapy development.

SOURCE: Elsevier’s Strategic Transactions

But dealmaking extends well beyond the few clinical-stage collaborations that Merck Serono will be likely to ink each year. The company – belatedly and in the fashion of much of industry’s R&D reconstruction over the past decade – has refashioned its early-stage R&D as a network of relationships, consortia, and partnerships with itself at the center of various therapeutically defined hubs – in oncology, immuno-oncology, immunology, and a mostly externally focused neurology group. Bernard Kirschbaum, head of global research and early development at Merck Serono, is prepared for the inevitable comparisons to others’ R&D shuffles (GlaxoSmithKline PLC’s Discovery Performance Units (DPUs) or AstraZeneca PLC’s virtual CNS Innovative Medicines Unit (iMED) come to mind), but notes that the groups within Merck Serono enjoy unprecedented freedom.

“When we talk to people who know these [other] models quite well, one mistake the companies made was building too much micromanagement into the models,” he says. “We want to avoid that, to empower our researchers as much as possible.” These groups, which Merck Serono calls Translational Innovation Platforms, or TIPs, will be measured by what they bring into the company pipeline, says Kirschbaum. “Every TIP has its particularities and freedom to structure things how [it] is best for them,” he explains.

TIP leaders make their own portfolio decisions, and are free to use Merck Serono’s internal enabling functions – i.e. the various service functions that exist outside of each TIP – or to find outside service providers. Each TIP also has an independent advisory board consisting of academic and industry stars, and a three-year business plan, synced up with Merck Serono’s budgeting cycle. (The first investment cycle will begin in 2014, says Kirschbaum, and until then the TIPs can refine their business plans.) Within each TIP Merck Serono has bundled related projects in so-called “innovation clusters.” For example in oncology the company is focused, for now, on kinases and oncogenes as well as the tumor microenvironment; it’s exploring establishing clusters in metabolism and autophagy, Wnt and development pathways, and DNA damage and repair. “Each innovation cluster has its preferred connections to biotechs and academic groups, to research centers, which are constantly evolving and changing,” says Kirschbaum. “They can shift internal investment to external investment,” or vice versa, he says.

The immuno-oncology TIP launched in June 2013, distinct from oncology because Merck Serono wanted to give immuno-oncology “its own identity, instead of being the fifth wheel on the car of another organization,” says Kirschbaum. “It started under the umbrella of oncology, but we saw the science maturing and a portfolio emerging. And we realized that immuno-oncology is very special in terms of how you do the clinical studies and how you read the clinical studies – it follows a different path from the targeted therapies.”

Corporate Venture And Other Experiments

Merck Serono’s TIPs are perhaps the most obvious example of how the company has opened up to the outside world. It also participates in or has helped to build a variety of early-stage networks including the European Lead Factory, a public-private R&D consortium set up under the EU’s Innovative Medicines Initiative, and the BioMed X Innovation Center, an incubator in Heidelberg, Germany, and has participated in a variety of industry consortia (Merck Serono is one of the corporate backers of the Ablexis LLC antibody technology and a member of the non-profit clinical trial standards initiative [TransCelerate BioPharma Inc.], for example). (See Also see "EU’s IMI, Drug Makers And Universities Join In New R&D Effort" - Pink Sheet, 7 February, 2013..) It also works with the National Multiple Sclerosis Society’s Fast Forward LLC to identify and fund early stage MS projects.

At the very beginning of the funnel, the company has also doubled down on its venture activities, announcing in May that it was increasing the cash available to its corporate venture fund for the kinds of exploratory investments that could lay a foundation for future innovation clusters or entire translational efforts.

“The real purpose of doing Merck Serono Ventures is to go that bit broader,” explained Susan Herbert at the company’s recent Venture Day in Cambridge, MA. “To think in terms of adjacencies. Where’s the science taking us?” It's these areas, where Merck Serono neither has nor wants to build the expertise or infrastructure to compete yet, where it’ll make investments and “embrace the uncertainty,” she says.

In March 2009 the company made an initial €40 million commitment to its new venture fund, which had a strategic mandate to invest in products and technologies that could benefit patients in areas relevant to Merck Serono’s businesses. To date the fund has made 12 investments. Now €100 million, Merck Serono Ventures remains an important strategic window for its parent company.

The boost will allow the venture group to more sustainably fund companies on par with its syndication partners, says the fund’s head, Roel Bulthuis. In other words it’s a step toward becoming a more attractive investment partner for traditional VCs and more established corporate players. Merck Serono has also now structured MSV as a separate legal entity “to make sure we can manage our assets professionally,” Bulthuis said during a presentation at the Venture Day.

Creating a distinct organization also lets Merck Serono – a company decidedly in the second wave of competitors in the field, behind Merck & Co., BMS, Roche, and others – create more visibility for its programs. Creating a TIP in immuno-oncology is “a signal into the organization and externally as to the importance of the field” to the company, says Kirschbaum. Merck Serono has three cancer immunotherapies in early clinical development: a mAb targeting programmed cell death ligand (PD-L1) in Phase I, NHS-IL12, an antibody-targeted delivery of the cytokine IL-12 in Phase I, and NHS-IL2, an antibody-targeted delivery of IL-2 that has completed a Phase I study.

The TIP comprises three clusters, in antigen-specific cancer immunotherapy, tumor immune tolerance, and cancer stem cells. It includes a team of 45-50 researchers, physicians, and biomarker specialists working together from target identification to proof of confidence, and will be divided geographically between the company’s research hubs in Boston and Darmstadt. (See [A#14130626004].) “Proof of confidence is a reasonable confidence that something’s worth the investment,” explains Kirschbaum. This typically means early signs of efficacy, a clear idea about dosing, indications about possible patient stratification and selection, possibly a biomarker. “A few years back fewer than 30% of our programs had a biomarker attached. Now it’s 70% to 80%,” says Herbert. “A company of our size has to have an active stance when it comes to use of biomarkers in R&D or as companion diagnostics, and personalized medicine is fundamental for us.”

Cultural Shift

The restructuring of Merck Serono R&D extends beyond the TIPs and into later-stage development. In May 2013, the company signed a five-year clinical development agreement with Quintiles Transnational Holdings Inc. that the companies say is a unique arrangement that moves beyond standard industry-preferred provider agreements. (See sidebar “Don’t Call It Outsourcing: Merck Serono’s Broad Deal with Quintiles.”) But as with early-stage R&D, the mantra is one of flexibility. Though even the most innovative companies have processes, “The Way We Do It Here,” says Jenkins, under Oschmann at Merck Serono, there’s no “one way,” she says. Oschmann and his senior team are trying to encourage a biotech-like nimbleness at Merck Serono, embracing experimentation and a diversity of partnerships within the fairly staid confines of the Merck Group to rebuild the business.

[Sidebar#2013800133]

Right now, fully half of the company’s pipeline is derived from external sources, and that proportion is likely to increase in the future as its internal R&D operation shrinks while it works through the ongoing restructuring. And one upside of Merck’s ownership structure is that getting buy in for smaller or medium-sized deals or investments is a streamlined process, and the company can pursue “lots of different models and experiments,” Jenkins says, particularly in the early-stage R&D spaces it’s mainly interested in pursuing. The implied downside is that it’s harder when you’re asking for $500 million for a large Phase III program.

But those requests are, for the time being, likely to be few and far between. The ”Fit for 2018” program, the name given to the company’s operational efficiency initiative (2018 will be the company’s 350^th year), allows for a certain amount of navel gazing in the meantime. Structurally the company is in flux, busy identifying where its capabilities and expertise lie, and evaluating its R&D targets while simultaneously drawing observers’ attention to fuzzier objects on the distant horizon. Five years is a long time.

Meanwhile it’s unclear why Merck Serono’s new R&D structure – leaner and meaner, for sure, but in many ways still a work in progress – would give it a competitive edge over other companies that recognized earlier the need for the kind of fixes and streamlining Merck Serono is implementing. The company’s competitive edge, if it is to exist, will be one of execution: identifying and locking down the best science, winning deals, moving quickly.

A skeptic might argue that Merck Serono faces most of the same issues as its larger peers – chief among them poor R&D productivity demonstrated by late-stage debacles like cladribine and increasing scrutiny from payors – but lacks the corporate appetite for the kind of transformative dealmaking or R&D investment that might buy a different company the growth needed to solve them. Unsurprisingly, Oschmann disagrees. He points to the diversity of the broader Merck KGAA portfolio and argues that Merck Serono’s path to growth can be a slower and steadier one. “Merck Serono is a mid-sized company. We don’t have the ambition to become a pure-play Big Pharma company,” he says, noting that “I haven’t seen any example where scale has contributed to R&D success.” (Notably and underscoring Oschmann’s point, generating scale in R&D was one driver of the Serono acquisition.) Pharma’s growth conundrum is fundamentally about industry’s inability to effectively and efficiently move away from the old blockbuster model to a new world of targeted therapies and segmented patient populations, he argues.

Oschmann says that Merck’s family ownership and portfolio structure provides much-needed stability that can be lacking at other companies. He also points out that despite the different markets and the intrinsic risk-hedging of the portfolio strategy, each business excels at identifying and nurturing talent and managing innovation. “All of Merck’s businesses are about innovation – we try to make great things happen either in specialty medicines or in specialty chemicals or life sciences tools,” he says.

At the company’s May Venture Day, Oschmann remarked on the reinvigorated efforts to build the company’s pipeline through dealmaking and investment, ticking through the company’s recent externalization successes. “If we find something that is truly attractive, we find a way,” he said. Perhaps reacting to the widening eyes or subtle smiles of a venture community eager to help Merck Serono part with its owners’ cash, he hastened to add: “Within limits, obviously!”

Can Merck Serono Bounce Back?

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