Mar. 10Merck & Co. Inc. said very few, if any, of its 12,000 Philadelphia-area jobs would be lost in the $41.1 billion merger it announced yesterday with Schering-Plough Corp., a deal that company executives billed as their answer to meager growth prospects and increasing generic competition.
"Minimal or none at all," Merck chief executive Richard Clark said about the impact of the proposed merger on his company's three Montgomery County facilities.
The two companies do not overlap in Pennsylvania, said Clark, who lives in Doylestown. He also said Merck's local operations, most notably its vaccine manufacturing facility in West Point, belonged to a business line the company was counting on for growth.
Big drug companies are facing the expiration of billions of dollars of patents in the next few years. The Obama administration also is pushing changes that would favor cheaper generic companies. The result: Many pharmaceutical companies are looking for a partner to lean on in tough times.
Less than two months ago, New York-based Pfizer announced a $62 billion deal to acquire rival Wyeth of Madison, N.J. That acquisition will include about 20,000 job cuts, but the companies have not said how those losses will affect Wyeth's Collegeville and Malvern operations, which employ 5,000 people.
Analysts expect more mergers to follow. They suggested that Bristol Myers Squibb of New York and Eli Lilly of Indianapolis were likely targets. Neither company commented yesterday. But some companies, including GlaxoSmithKline P.L.C. and AstraZeneca P.L.C., have all but ruled out large deals.
Big Pharma mergers have often foundered as executives became distracted by the details of putting two firms together and lost focus on research, according to academic studies.
Executives from Merck, based in Whitehouse Station, N.J., and Schering-Plough, based in Kenilworth, N.J., said they expected to cut about 16,000 jobs globally, about 15 percent of their combined workforces. Merck is facing expiration of its patent on the asthma drug Singulair, which generates about $4.3 billion in yearly sales.
Merck and Schering-Plough already are partners in selling the cholesterol drug Vytorin, which has hit turbulence over its efficacy and safety. Clark said the merger would speed decisions about Vytorin and bring together two companies with complementary drug pipelines.
Merck's traditional strength in the cardiovascular arena, for example, fits well with Schering-Plough's promising treatment for blood clots, industry observers said. Also, Merck's HIV drug Isentress could complement a hepatitis C drug that Schering-Plough is developing.
"These are two companies that have strong asset bases coming together," said Mike Luby, who was a marketing executive at Merck before leaving to found TargetRx, a Horsham company that helps drug firms figure out what doctors want.
About 70 percent of Schering-Plough's revenue comes from outside the United States, diversifying Merck's revenue streams and giving it international sales know-how. In a venture with Johnson & Johnson, Schering-Plough oversees foreign sales of the arthritis drug Remicade, which belongs to a category of drugs known as biologics.
Biologics include vaccines and typically are injected or infused. They are more complicated to make than pills, and Merck has announced a big push into producing generic versions of biologic drugs.
Some analysts predicted yesterday that the Remicade joint venture could invite a rival bid from Johnson & Johnson, but the New Brunswick, N.J., company did not comment.
Merck and Schering-Plough said they expected to complete the deal by the end of the year. The combined company would have $47 billion in yearly sales.
Schering-Plough shareholders would get 0.5767 a share of Merck and $10.50 in cash for each share they own, or $23.61, a 34 percent premium over Friday's closing prices. Merck shares closed down $1.75, or 7.7 percent, at $20.99 yesterday, a 52-week closing low. Schering-Plough shares closed up $2.50, or 14.2 percent, at $20.13.
The company would be called Merck. Clark would be chief executive, and Schering-Plough chief executive Fred Hassan would remain through the transition.
Merck has laid off 750 U.S. sales representatives this year and plans to complete cuts of as much as $4.2 billion by 2012.
It's not clear how widespread cutbacks in the drug, medical-device, and biotechnology industries will affect this region. Those industries employ about 53,000 here, according to the Biotechnology Industry Organization.
"The specter of consolidation has always been upon us," said Phil Gerbino, president of the University of the Sciences in Philadelphia and a director of Pennsylvania Bio, a state trade group. "But just as one side of pharma continues to consolidate, it's balanced by growth."
Improved prospects for generic drugs likely will benefit companies such as Israel's Teva Pharmaceutical Industries Ltd., the world's largest maker of generic drugs.
Its U.S. headquarters are in North Wales, Montgomery County.
Pennsylvania Bio president Mickey Flynn also expressed optimism.
"Our industry is a very strong industry," Flynn said. "We will have some ups and downs and, in spite of the tough economy, will come out of this in a much stronger position."
Contact staff writer Miriam Hill
at 215-854-5520 or hillmb@phillynews.com.
