Merck Serono looks to expand value chain

BEIJING - The biopharmaceutical company Merck Serono AG says mergers and acquisitions (M&A) will play a part in its development strategy in China, as the company seeks to complete its industry value chain and expand into the grassroots market.

Howard Sui, chairman and president of Merck Serono China Co Ltd, told China Daily on Monday that the company already has a research and development (R&D) center and a trading company in China, and is now seeking businesses engaged in manufacturing and distribution.

"We are selecting information and have had contact with some Chinese companies, but no decision has yet been made," said Sui.

Merck Serono, the prescription medicine division of the global pharmaceuticals and chemicals group Merck KGaA, has annually maintained sales growth of more than 30 percent in China since entering the market in 2007.

Merck Serono set up a trading company in Beijing with an investment of 300 million yuan ($45 million). Its Asian R&D center was established in November 2009, at a cost of 150 million euros ($211 million).

However, the company has no production capability in China, because it lacks the facilities in the market.

"We plan to establish a manufacturing facility in Beijing later this year after a decision was made when the group's senior executives visited China in 2010. The internal approval procedure is expected to be finalized next month," said Sui, without revealing the amount of investment in the new plant, or its production capability.

He also said that M&A activity will combine with organic growth to support the development of the company over the long term.

Merck Serono has introduced 18 drug brands in nine separate fields, treating conditions in the cardiovascular, thyroid, and women's health and fertility fields. The treatments are available at key hospitals in cities nationwide though partnerships with domestic distribution companies.

"If Merck Serono can buy a distributor, it will help the drugmaker to reach the grassroots markets at a relatively low cost," said Li Yu, a researcher at the Samsung Economic Research Institute China.

Merck Serono's parent group has successfully employed an M&A strategy in China. In January, Merck KGaA bought Beijing Skywing Technology Co Ltd, a biopharmaceutical company, for 120 million yuan. In September 2009, it also acquired Suzhou Taizhu Technology Co Ltd, an effect pigment supplier based in Jiangsu province, for 28 million euros to expand its chemical business portfolio.

Merck KGaA has also been active in global M&A. Its latest move is the acquisition of Millipore Corp - a Massachusetts-based biopharmaceutical and life sciences company - in June.

That helped the German group lift its full-year profits and exceed analysts' expectations. The 2010 fiscal year saw post-tax profit climbing 70 percent to 642 million euros.

In 2007, Merck KGaA paid $13.3 billion to acquire Serono, at the time Europe's largest biopharmaceutical company by sales, and establish the Merck Serono joint venture. That deal helped the company to grow its China business by nine or 10 times between 2007 and 2009.

Multinational pharmaceutical companies have recently been conducting an aggressive M&A campaign in China. On March 22, the Swiss drugmaker Novartis AG announced that it had completed the acquisition of an 85 percent stake in Zhejiang-based Tianyuan Bio-Pharmaceutical Co Ltd for 850 million yuan.

France's Sanofi-Aventis SA bought BMP Sunstone Corporation for approximately $521 million in the largest M&A deal in China's pharmaceutical industry.

China Daily

(China Daily 03/29/2011 page16)