Rivals Glaxo, Novartis reported close to making bids for Serono

GlaxoSmithKline PLC and Novartis AG are considering bids for Serono SA, Europe's largest biotechnology company with a market value of $13 billion, people involved in the offers said.

Serono, the maker of multiple sclerosis treatment Rebif, in November hired Goldman Sachs Group Inc. to explore its options. The London-based Glaxo and Novartis, based in Basel, Switzerland, have yet to decide on a price, said three people who declined to be identified because the plans are confidential.

Shares of Geneva-based Serono have risen 28 percent since November on optimism about a sale. Novartis and Glaxo are both developing new oral multiple sclerosis drugs and are attracted by Rebif, which brings in half of Serono's sales. A buyer would also get the company's Gonal-F fertility treatment, experimental drugs for cancer and inflammatory illnesses, and production capacity.

''Serono is definitely a profitable franchise, with its multiple sclerosis and fertility treatments," said Luis Correia, who helps manage about $550 million, including Novartis shares, at Clariden Bank in Zurich. ''It could also make sense to acquire Serono's biotechnology manufacturing capacity."

Novartis spokesman John Gilardi and Glaxo's David Mawdsley declined to comment. Benedicte Bogh, a spokeswoman for Serono, wouldn't comment on what she called ''speculation."

Serono's 40-year-old chief executive, Ernesto Bertarelli, is maneuvering to sell the company at a time when its top two products, which account for more than three-quarters of sales, are facing tougher competition.

Serono's fertility business is threatened by price pressure from Akzo Nobel NV's Organon unit, while Rebif may lose market share to oral multiple sclerosis products, analysts say.

Smaller drug makers are struggling to get new products to market as regulators get stricter, laboratory productivity falls, and competition increases to buy drug rights. Novartis agreed to spend $13 billion on purchases last year, while Glaxo spent about $1.9 billion.

A purchase of Serono would be the biggest pharmaceutical transaction since Sanofi-Synthelabo SA bought Aventis SA in 2004 for $72.7 billion. Other companies that may be interested in Serono include Pfizer Inc., which helps sell Rebif in the United States, and Sanofi-Aventis, which is developing its own oral MS drug, according to analysts. Spokesmen for Pfizer and Sanofi declined to comment.

Shares of Serono rose to a three-year high yesterday after Novartis said it won't bid for Swiss vaccine maker Berna Biotech AG, fanning speculation it will target Serono instead. The shares rose 1.2 percent to $201.16. Shares of Novartis, which ranks as the number two drug maker in Europe by market value, rose 1 percent to $12.75 at the close of trading in Zurich.

Serono is trading at about 20.6 times expected earnings for next year, according to data compiled by Bloomberg News, compared with 17 times estimated earnings for Novartis and 16.7 times earnings for Glaxo, Europe's biggest drug maker by market value.

In the last three years, European drug makers have been involved in almost 800 takeovers worth a total of $146 billion, according to Bloomberg. The buyers paid an average 26 percent more than the seller's share price.

Novartis earned $1.67 billion in the third quarter, compared with $1.47 billion a year earlier. Glaxo had profits of $2.1 billion in the third quarter.

Serono on Oct. 25 said third-quarter net income fell 10 percent, to $142.4 million, as it spent more on marketing and research. While Rebif generated $316 million in sales in the quarter, revenue from three of its top five products declined in the first nine months of last year. Serono predicted on Oct. 25 that the medication will be the market leader next year.

Novartis on Oct. 1 said a new study found its experimental, orally administered multiple sclerosis treatment reduced relapses in patients for as long as a year.

Bertarelli is organizing a defense of his 2003 victory in the America's Cup yacht race. He has a personal fortune of about $7 billion, according to Switzerland's Bilan magazine.

As of Sept. 30, Bertarelli & Cie, which is controlled by Bertarelli, held 57.26 percent of the capital and 67.16 percent of the voting rights in Serono.

Biogen Idec Inc.'s Avonex leads the market for medicines to treat multiple sclerosis -- a central nervous system disease that affects about 2 million people worldwide -- bringing in $1.42 billion in sales in 2004. Schering AG's Betaseron had sales of $944 million.

''Whoever has a promising oral multiple sclerosis drug in development should have an interest in Serono because that would help it to build up leadership ahead of the launch of whatever that compound is," Lombard Odier Darier Hentsch analyst Karl Koch said. ''That's why it's plausible and makes sense that we're talking about Novartis and Glaxo."

Existing MS medicines, including Rebif, Avonex, and Betaseron, all have to be injected. Oral treatments such as those being developed by Novartis and Glaxo could capture 40 percent of the market, Serono deputy chief executive Jacques Theurillat said in April.