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Novartis 'no' to Berna heightens Serono speculation

Novartis refuses to comment as market rumours point to forthcoming bid

Novartis has been strongly tipped to bid for Europe's largest biotech firm, Serono, after revealing that it has decided not to make an offer for Berna Biotech.

The Swiss firm had announced in December that it was conducting due diligence over a possible acquisition of the small vaccine maker. Investors have perceived Novartis' decision not to buy Berna as a further sign that it is weighing up an offer for fellow Swiss firm Serono, which is currently valued at around SwFr15.8bn ($12.4bn).

Novartis spokesman John Gilardi dismissed any connection made between the decision not to bid for Berna and a possible love for Serono as ìspeculationî.

However, movement in Serono shares suggest the investor market has made the connection. In early morning trading today (Tuesday January 10), Serono shares rose 3.5 per cent to SwFr 1,100 before dipping slightly to SwFr 1,090 in the afternoon. Novartis shares fell 2.2 per cent to SwFr 67.80.

Novartis is far and away analysts' favourite bidder for Serono, although other pharma big guns such as Pfizer and Johnson & Johnson are among the field of potential bidders.

In late December, Switzerland's SonntagsZeitung newspaper reported that Novartis would offer 1,050 SwFr ($821) a share to public holders of Serono stock, quoting insiders at the biotech firm's headquarters. It also reported that chief executive and chairman Ernesto Bertarelli and his family, who own around 64 per cent of the company, would be offered 1,200 SwFr ($938) a share, which would be acceptable under Swiss law.

ìSince November when first signs emerged that Serono might be for sale, its share price has surged by nearly 25 per cent, while during the same period, the share price of Novartis has declined by 6 per cent,î commented analyst Karl Heinz Koch at Lombard Odier Darier Hentsch. ìThere has been no apparent reason for these moves other than speculation of a bid.î

The decision by Serono to retain global investment banking firm Goldman Sachs to ìexplore strategic alternativesî last month provides no assurances that the business will be sold, the Swiss biotech firm has maintained.

However, rumours abound that suitors have been requested to submit binding bids for a potential 2006 auction of one of Europe's best-known biotechs.

As a proposition, Serono has managed to create a comfortable niche for itself with Rebif, its successful multiple sclerosis treatment. However, observers have deemed the company not to be top of big pharma's wish list, which, despite Serono's assertions to the contrary, may view it as a one-drug wonder.

The Swiss firm remains adamant that its pipeline is ìstrong and deep - with 30 ongoing projectsî, yet analysts fear that it does not have enough to offer a prospective pharma buyer.

According to reports, the company itself is very keen to see more new products coming through the pipeline that will offset its heavy reliance on Rebif, which in 2004 accounted for nearly 50 per cent of total sales.

Analysts have estimated that the firm has spent SwFr37m (£16.3m) developing the drug and a top priority is to find new, additional revenue streams; particularly as big pharma firms, including Pfizer, are developing products that will rival Rebif.

Meanwhile, Novartis' decision to leave Berna alone means Dutch company Crucell can now proceed with its proposed purchase of the firm. Berna will ask shareholders to approve the SwFr 590m ($462m) takeover on Wednesday.

30th September 2008

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