Former Merck exec shares thoughts on merger proposal
March 9, 2009 – 4:27 pm by Steven NilesSo, Merck & Co. and Schering-Plough Corp. have formed a definitive merger agreement under which Merck and Schering-Plough will merge under the name Merck in a deal valued at $23.61 per share, or $41.1 billion. Friend of Med Ad News, Mike Luby, has kindly shared his thoughts on the proposed merger from his unique perspective as a former Merck executive.
Prior to founding TargetRx, Mr. Luby spent 10 years in sales and marketing positions at Merck. His most recent position at Merck was Senior Director of Marketing, Worldwide for New Products, where he was responsible for the marketing planning for two late stage development products.
Mr. Luby sees the proposed merger as bringing together a complementary mix of assets. Of note, he believes that the merger demonstrates the strength found in diversification as well as the evolution of the pharmaceutical industry to becoming more of a bio-pharmaceutical industry.
Here is Mr. Luby’s take in full:
Commentary from Mike Luby, Co-founder of TargetRx, on the Merck/Schering deal
The deal to combine with Schering-Plough brings both depth and diversification to Merck. Schering adds complementary depth to Merck’s position in its “core” therapeutic areas of cardiology and metabolic conditions, women’s health, respiratory disease, and infectious disease, and brings greater presence in a number of Merck’s emerging areas such as neuroscience and oncology. This is true for both marketed products as well as the pipeline, as the combination essentially doubles Merck’s late-stage pipeline. In the marketed products and the pipeline, there is remarkably little overlap, which provides great opportunity for leverage in many aspects of the combined company’s operations, especially in sales and marketing, where specialization can pay dividends. In terms of diversification, Schering also brings many new things to Merck. Schering’s experience in biologics, with PegIntron as well as the rights to Remicade and golimumab ex-US, provides a nice complement to Merck’s vaccine expertise and support for Merck’s recently announced strategy with follow-on biologics.
Schering also brings geographic and business line diversification with its significant presence outside of the US and its over the counter (OTC) and animal health businesses. In 2008, ~70% of Schering’s revenue came from outside of the US, with a disproportionate mix (relative to Merck) in Europe / Canada and Latin America and a reasonable presence in Japan and the Asia / Pacific region. This gives Merck a direct presence in the OTC market, whereas historically the company has partnered OTC business opportunities.
Overall, this is a very complementary mix of assets, combining two companies with solid operations and very bright prospects in their respective pipelines. In fact, if you were to put down on paper the assets that Merck has today and outline assets that could complement and stretch Merck to increase strength and diversification, Schering-Plough assets would be a very good fit.
There are two noteworthy things that I take from this merger, which seem to be part of a trend that will likely trigger similar moves. The first is the strength found in diversification, which reverses the trend of the past several years as many pharmaceutical companies have shed what they called at the time “non-core” assets to focus on their core pharmaceutical business. The patent loss of blockbusters, combined with unexpected setbacks in R&D or regulatory approval have put a number of very large companies into a tough position based on a few significant events. Product line diversification, both in marketed products and in the pipeline, can hedge against this. Similarly, diversification that leverages the core assets of the firm into businesses such as OTC, animal health, diagnostics, and other areas can help to guard against this.
The second area of note is what I see as the evolution of the pharmaceutical industry to becoming more of a “bio-pharmaceutical” industry. In the Pfizer-Wyeth merger, Pfizer’s acquiring significant presence in biologics and vaccines is a major driver of the deal. Similarly, Merck is acquiring Schering’s expertise in various biologics ranging from Peg-Intron for Hepatitis C, to the ex-US experience with Remicade and golimumab, which is coming to market. This results in two of the largest players in the market (Pfizer and Merck) with strengths in both small molecules and in vaccines and biologics, which I believe furthers the transformation to a “bio-pharmaceutical” business model. I see the potential Roche-Genentech deal along these lines, and I would expect other deals that drive at these two trends, big or small, to continue.
Tags: deals, Merck, merger, Schering-Plough, TargetRx
