I've disagreed with his previously-bullish remarks on Merck/Schering-Plough (during the Arbiter 6 - HALTS shakeout), but I do think he's got it about right this afternoon, with his "Foolish" headline: "Merck/Schering Doesn't Look So Good" (do go read it all) -- as he notes that fully five of the top ten franchises showed sales declines in the Q3 2009 earnings releases, thus:
. . . .Diabetes drugs Januvia and Janumet are carrying the companies. They registered undeniably impressive growth, but I'm not sure how long Merck can keep that up. Bristol-Myers Squibb and AstraZeneca recently launched a similar drug, Onglyza, and Amylin Pharmaceuticals and Eli Lilly have a once-weekly diabetes drug under review with the FDA.
International growth in sales of Remicade is also making a major contribution, but it's not entirely clear whether the combined company will be able to hold onto its ex-U.S. marketing rights for the drug. Johnson & Johnson wants them back because of Schering's change in ownership. . . .
Ouch. Mr. Orelli took the time to run a mini-pro-forma, looking at the combined company, and what he sees hinges almost entirely on how much cost the coming "Merck-ification" drives out of the two companies.
Ominously, mergers born of cost-cutting don't show very impressive long-term returns, according to most empirical analyses.
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