Schering-Plough will bolster its presence in primary care with drugs in women's health and fertility and extend its hospital franchise through a planned $14.4 billion acquisition of Organon BioSciences. The drug maker announced plans to acquire Organon, the pharmaceutical and animal health care business of the Dutch chemical company Akzo Nobel, March 12.

"As we said ... we were looking for the right bigger deal, [and] when we found it we would do it," Schering CEO Fred Hassan said in a same-day conference call. "We found it and we did it."

The deal will add to Schering top-line sales of nearly $5 billion. Organon's pharmaceutical unit generated sales of $3.4 billion in 2006, Schering reported. Organon's leading products include the infertility treatment Follistim (follitropin), the muscle relaxant Zemuron (rocuronium) and the contraceptives NuvaRing (etonogestrel/ethinyl estradiol) and Implanon (etonogestrel).

"With those franchises - infertility and women's health - we significantly strengthen our position in primary care," Hassan said. "We also further extend our core into the hospital market," he added, pointing to Zemuron, which he said complements Schering's antibiotic Avelox (moxifloxacin) and antifungal Noxafil (posaconazole).

Organon's top-selling drug is Follistim, which generated sales of $506.1 million in 2006. Oral contraceptives generated $881.7 million, with NuvaRing accounting for $280.7 million.

Nonetheless, while the acquisition provides Schering entry into new therapeutic areas, it might lack luster in the eyes of some investors for failing to bring in a product complementary to its important cholesterol franchises - Zetia (ezetimibe)and Vytorin (ezetimibe/simvastatin).

Hassan, however, maintained that the deal provides several long-term growth opportunities through Organon's pipeline, which includes five Phase III candidates and several Phase II projects.

"Strategically, this deal fills our late-stage pipeline gap while strengthening our innovation engine for the long-term," Hassan said.

Among Organon's leading pipeline candidates are asenapine, an atypical antipsychotic for schizophrenia and acute mania bipolar disorder, and sugammadex, a potentially novel drug for anesthesiologists that reverses neuromuscular blockade induced during surgical procedures.

Lingering questions may remain about asenapine, however. In November, Pfizer dropped out of a development deal for the drug, citing a "commercial analysis" (¹ Also see "Pfizer Ends Asenapine Collaboration With Organon" - Pink Sheet, 28 November, 2006.). That announcement came shortly after Organon had indicated that Phase III study results showed the compound was effective in two of four short-term schizophrenia trials and two short-term bipolar mania studies.

Of the Pfizer pullout, Hassan maintained, "Every company makes their own judgment about products. I don't think necessarily that should be a big negative."

Organon is currently undertaking additional maintenance studies of the drug, but Schering Research Institute President Tom Koestler said the company may already have a data package "worth" submitting to FDA.

Additional Phase III products in development by Organon include NOMAC/E2, an oral contraceptive, Org 36286, a long-acting recombinant follicle-stimulating hormone for infertility, and esmirtazapine for the treatment of insomnia. Organon also brings biologic manufacturing capability and a $1.5 billion animal health unit to Schering.

Schering expects the acquisition to yield annual synergies of $500 million within three years. Most of the savings will stem from administrative and overhead cost reductions, the firm reported. The combined company will employ roughly 50,000 employees, Hassan noted, and as a result of the merger, some head count reductions are anticipated.

However, the chief executive said, "Where there are needed reductions, we expect most of them to be achieved via attrition and the avoidance of head count increases." The company does not plan to make changes to the sales force teams supporting any of the businesses until at least one year after the closing of the deal, he added.

"We will not disrupt the customer relationships of the people who bring in our top-line sales," Hassan said. The transaction is expected to close by the end of 2007.

Akzo Nobel had initially planned to launch an initial public offering for its Organon subsidiary (² Also see "Akzo Nobel Shareholders To Vote On Organon BioSciences IPO" - Pink Sheet, 15 August, 2006.).

Schering, meanwhile, has been looking to make a major acquisition for some time, especially since entering into the fourth phase of its six- to eight-year restructuring initiative called "build the base." During a conference call last year, Hassan said the company had been selective in its acquisition strategy due to competitive prices (³ Also see "Schering-Plough’s “Build The Base” Action Agenda May Include Acquisitions" - Pink Sheet, 20 October, 2006.).

-Jessica Merrill (j.merrill@elsevier.com)

Schering-Plough Makes Its Move, Snapping Up Organon For $14.4 Billion

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