Schering-Plough Gets Hitched! Who Knew?

What will pharma's next big, splashy merger be? It's that time of year again, and rumors are flying fast and furious. Schering-Plough scored a coup by grabbing the first spotlight last week when it decided to take the plunge--opting for a quiet, dignified affair with a smaller company that has complementary strengths in primary care and animal health.

The New Jersey-based drug giant will purchase Organon, a unit of Dutch chemistry company Akzo Nobel, for $14.4 billion. Although best known for its non-oral contraceptives, NuvaRing and Implanon, Organon also has products in the fertility, anesthesia, and central nervous system therapeutic areas--three lucrative markets that Schering-Plough, a major player in allergy, cardiovascular, and anti-infective products, is eager to crash. Both companies have strengths in animal health.

Joseph Tooley, an analyst at A.G. Edwards, expects cardio products to remain Schering-Plough's top growth drivers. But he noted that the company's marketing prowess could help build out Organon's franchises. Moreover, Schering-Plough needs more products in late-stage clinical trials--which Organon has--if it wants to maintain its financial momentum while waiting for its own pipeline to mature. "The deal adds overall diversification--and has certainly filled in some holes in the Schering-Plough picture," Tooley said.

The acquisition gives Schering-Plough five drugs in Phase 3 as well as biologic and vaccine compounds. "In this consolidating industry, gaining scale is important," CEO Fred Hassan told analysts.

Yet one Phase 3 product with a question mark over it is asenapine, a schizophrenia drug that Pfizer gave the once-over before rejecting. Critics argue that asenapine offer no benefit over current therapies. But Tooley is in the more optimistic camp. "It's trial and error in that space," he said, referring to the fact that schizophrenia patients can have vastly different responses to seemingly identical drugs. "There's really not a lot of differentiation in that market."

Schering-Plough is projecting an attractive $500 million savings in cost synergies over the next three years through attrition and a reduction in selling and administrative expenses. Yet Hassan, a perennial dealmaker, pledged to maintain his sales-force headcount for at least one year--noting that too many mergers sour because executives emphasize cutting costs rather than generating revenue. "Most integrations do not capture the value they should," he said.

So, Big Pharma, who's next? All eyes are on Bristol-Myers Squibb to see if that company has those wedding-bell blues.