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Merck's challenges

The merger of Merck & Co. Inc. and Schering-Plough Corp. combines complementary pipelines that could make shareholders happy in the short term by maintaining Merck's dividend and delaying the loss of revenues from patent expirations.

But Merck can't expect much of a near-term pop from new products Schering-Plough brings. Of the four in registration, one is a me-too, two have regulatory issues and one might be disputed by a partner. Thus long-term growth will depend on clinical and regulatory execution, particularly for a Schering-Plough compound in the increasingly competitive HCV space and of both companies' compounds in the cardiovascular space, where FDA has been raising the regulatory hurdles.

Prior to Schering-Plough, Merck's largest acquisition in the drug space was $1.5 billion for the 49% of Banyu Pharmaceutical Co. Ltd. it did not already own in 2003. It also bought RNAi company Sirna Therapeutics Inc. in 2006 for $1.1 billion (see BioCentury, Nov. 6, 2006).

The short-term goal of last week's deal is to fill the revenue gap created by expiration of patents covering Merck's biggest drugs, and to reduce costs through synergies.

Merck sales fell 1% from $24.2 billion in 2007 to $23.9 billion last year, largely as a result of generic competition for osteoporosis drug Fosamax alendronate. Schering-Plough had $18.5 billion in sales for 2008, up 46% from $12.7 billion in 2007. The increase was mainly due to products obtained with the 2007 acquisition of Organon Biosciences N.V.(see BioCentury, March 19, 2007).

The combined company would have had $46.9 billion in 2008 sales.


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