Merck & Co is buying Schering-Plough Corp for US$41.1 billion in a deal that gives Merck key new businesses, access to a promising pipeline of new products and the chance to further cut costs, including eliminating about 16,000 jobs.
Merck hopes the cash-and-stock deal, which would vault it to the world’s No. 2 drugmaker, helps it better compete in a drug industry facing slumping sales, tough generic competition and intense pricing pressures.
The deal announced on Monday would unite the maker of asthma drug Singulair with the maker of allergy medicine Nasonex and form the world’s second-largest prescription drugmaker. Merck and Schering are already partners in a pair of cholesterol fighters, Vytorin and Zetia, although concerns about safety and effectiveness have hurt sales.
The companies say the deal will boost earnings per share in the first full year after it closes, and they’ll be able to save US$$3.5 billion a year after 2011.
The news comes six weeks after Pfizer Inc announced a US$$68 billion deal to acquire Wyeth and on the same day as reports that Genentech Inc is close to striking a US$$95-per-share sale to cancer drug partner Roche, after rejecting a deal for months.
Merck and Schering-Plough, along with most rivals, are eliminating thousands of jobs and restructuring to cut costs as generic-drug use grows and the recession drives consumers to spend less on drugs.
Merck spokeswoman Amy Rose said there won’t be any immediate changes in staffing, but “eventually, we anticipate an approximate 15 percent reduction in the combined company’s headcount,” she said, implying nearly 16,000 fewer jobs from their current total of 106,000.
About 60 percent of the cuts will come from marketing and administration, and the rest from manufacturing and research and development.
The deal would let Merck do the same thing Lipitor maker Pfizer is trying to do with its planned US$68 billion acquisition of Wyeth — diversify into a broad-based health care company like Johnson & Johnson.
Merck is a top maker of pills and vaccines, and acquiring Schering-Plough will add strength in the prized area of biologic drugs, thanks to its 2007 acquisition of Dutch biopharmaceutical company Organon BioSciences NV. These drugs, made from living cells, command high prices, are insulated from generic competition and are widely seen as the biggest growth area.
Analyst Steve Brozak of WBB Securities said the deal is mainly about Merck “buying revenue and buying earnings.”
Brozak thinks the next big industry move likely will be a large drugmaker, perhaps Johnson & Johnson, acquiring a medical device maker.
Erik Gordon, an analyst and professor at University of Michigan’s Ross School of Business, said he would keep an eye on at least three other drugmakers thought to be in the hunt for an acquisition: Bristol-Myers Squibb Corp, Eli Lilly & Co and France’s Sanofi-Aventis.
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