Big Pharma’s quest for focus and consolidation continued yesterday with Germany-based Bayer announcing that it is acquiring New Jersey-based Merck’s Consumer Care division — including such retail shelf staples as Claritin, Coppertone and Dr. Scholl's — for $14.2 billion. The deal will make Bayer the No. 2 company in over-the-counter sales to the combined Novartis and GlaxoSmithKline lineup once the respective deals close.
“Merck never found the support it sorely needed from Dr. Scholl’s and other brands, so it has decided to seek relief with a dose of Bayer,” writes the Star-Ledger’s Alexi Friedman on NJ.com.
In a telephone interview, Bayer CEO Marijn E. Dekkers pointed out that about 70% of Merck’s consumer products sales are in the U.S. and said he “saw opportunity in global expansion” of brands such as Claritin, Afrin and Coppertone, Chad Bray and Katie Thomas report in the New York Times.
“Bayer has a much more global presence, particularly in Europe and in emerging countries,” he said. “Our intention is to take some of these very good Merck brands and really aggressively promote them in other geographies.”
The merged consumer care business will be based in Whippany, N.J.
“Merck acquired many of its brand-name consumer care products such as Dr. Scholl’s and Claritin when it purchased Schering-Plough in 2009 for its experimental prescription medicines,” the Star-Ledger’s Friedman points out.
“This was not an area that was part of Merck’s core business before that acquisition,” Decision Resources analyst Jason Bowers tells Friedman. “So it doesn’t surprise me that it’s not a part of their core business five years later.”
“Bayer also said it had agreed to a strategic collaboration with Merck to develop and commercialize medications for cardiovascular diseases,” Shan Li reports in the Los Angeles Times. “As part of the deal, Merck will pay Bayer $1 billion upfront and as much as $1.1 billion for hitting sales milestones.”
“We're going to look for the best opportunities within that portfolio. I wouldn't say we're finished,” Merck CEO Kenneth Frazier told CNBC’s “Squawk on the Street.” “We're going to continue to evaluate opportunities to create value. That’s to buy things that will make sense in a value-creating opportunity and to sell things we don't think are core,” CNBC’s Jenny Cosgrove reports.
“The latest marriage in the drug sector follows last month's three-way $28.5 billion tie-up involving Novartis, GlaxoSmithKline and Eli Lilly,” USA Today’s Adam Shell writes. “It also comes amid U.S.-based Pfizer's ongoing $106 billion takeover attempt of British drugmaker AstraZeneca. That potential mega-deal has yet to be consummated as AstraZeneca says Pfizer's sweetened deal is still insufficient.”
Also, Valeant Pharmaceutical Industries and activist investor William Ackman’s Pershing Square Capital Management have made an unsolicited $47 billion bid for Allergan, the maker of Botox.
“Allergan has approached alternative potential combination partners,” Reuters’ Susan Kelly reported earlier this week, leading Ackman to write a letter to Valeant management cautioning it against pursuing any alternative deal that did not offer a better value.”
“The deals would leave fewer competitors with larger revenue streams in each segment of the drug business, from prescription medicines and vaccines to drugs for livestock and pets,” Peter Loftus observes in the Wall Street Journal. “The narrowing of focus carries some risks, leaving companies more vulnerable to setbacks in their remaining businesses, analysts and industry officials say.”
“Companies are being told by their shareholders to focus on what they are historically the best at,” ISI Group analyst Mark Schoenebaum tell the WSJ. “That varies from company to company. So companies are buying their strengths and selling their weaknesses.”
Bayer has certainly come a long way since it started in 1863 “with a friendship between two men, plenty of natural curiosity and two kitchen stoves” who “eventually discovered how to make the dye fuchsine,” as a website history relates. The company’s intense research efforts eventually led to the “drug of the century,” Aspirin, which was developed by Felix Hoffmann and launched onto the market in 1899.”
In a piece that endeavors to explain “why Bayer, based in Germany, has paid a heady multiple of 21 times the acquired Ebitda,” Reuters Breakingviews’ columnist Olaf SotrbeckIn writes: “Synergies help square the circle.”
Gimme one of those aspirins, please.