Schering-plough May Be Next Drugmaker Acquired By A Foe
Shares of Schering-Plough rose the most in a month yesterday in New York trading on speculation the Kenilworth, New Jersey-based drugmaker may be a takeover target for Johnson & Johnson and Merck & Co., said Barbara Ryan, an analyst with Deutsche Bank in New York, in an interview. Schering-Plough co- markets its top-selling anti-inflammatory drug Remicade with J&J, and developed the cholesterol pills Vytorin and Zetia with Merck.
“Schering-Plough is certainly a target,” said David Moskowitz, a New York-based analyst with Caris & Co., in a telephone interview. “They would fit well with J&J. Theyre my top choice. Also, weve heard that Merck may be interested in them as well.”
Schering-Plough has medicines in late-stage testing that may generate more than $6 billion in annual sales, the company said at a November analyst meeting. Last month, Schering- Ploughs earnings beat analyst estimates after the drugmaker added sales from its acquisition of Organon BioSciences and reduced costs.
The company rose $1.31, or 8 percent, to close at $17.63 yesterday in composite New York Stock Exchange trading, its biggest jump since Feb. 3 when it announced quarterly earnings above analyst estimates. Schering-Ploughs shares climbed 2.1 percent higher in extended trading.
$24 Takeout Price
“My guess is, if its true, a takeout price would be $25, but I dont know if theres any truth to it,” Deutsche Banks Ryan said. “This has been speculated many times before.”
The $25 would be a 42 percent premium over Scherings closing price yesterday, and value the drugmaker at $40.7 billion. The company ended the day with a market capitalization of $28.7 billion. Shares have fallen 12 percent over the past 12 months.
Schering-Plough didnt answer a request for comment. Bill Price, a J&J spokesman, declined to comment. Amy Rose, a Merck spokeswoman, didnt immediately return a call.
Merck rose 60 cents, or 2.7 percent, to $22.74. J&J rose 30 cents, less than 1 percent, to $47.97.
Remicade, a treatment for rheumatoid arthritis, generated $2.19 billion for Schering-Plough last year, 16 percent of company revenue. It was also J&Js top selling drug, with $3.75 billion in sales. The two companies share rights to golimumab, an experimental successor to Remicade, and their agreements give J&J sole rights to Remicade if Schering is sold, said Linda Bannister, an Edward Jones & Co. analyst in St. Louis, in an interview.
Entanglements
J&J, the worlds largest health care company, also has more resources, with $10.8 billion in cash and short-term investments as of Dec. 31. Merck had $4.37 billion on hand.
“If J&J is the suitor for Schering-Plough, that deal can be done a lot easier than if Merck is a suitor,” said Moskowitz of Caris & Co. “For Merck to take Schering-Plough, it would require a breakup, because I dont think Merck could really afford to buy all of Schering-Plough at this point.
“Theyre all pretty close in New Jersey. They can get into a car and within 20 minutes they can be at any one of those headquarters and be in an amicable discussion about how to break things up,” Moskowitz said.
Late-Stage Testing
Schering-Plough has medicines in late-stage testing that may generate more than $6 billion in annual sales, the company said at a November analyst meeting. Its most promising treatment in development, called TRA, is designed to prevent blood clots with fewer side effects than older drugs and could come on the market as early as 2011.
Schering-Plough shares the revenue of its Zetia and Vytorin cholesterol pills, which generated $5 billion last year, with Merck. If Schering-Plough is purchased by a larger company the deal with Merck would be off, Schering-Plough has said.
As of Jan. 31, U.S. sales of Vytorin had slid 43 percent and Zetia 33 percent since a January 2008 study questioned whether the drugs were better at unclogging arteries than an older, cheaper pill. Schering-Plough Chief Executive Officer Fred Hassan has been firing workers and closing factories to save $1.25 billion by 2010 to recoup some of the cholesterol pill losses.