Sunday, August 29, 2010

WSJ: Merck US, And Merck Germany -- Combine The Womens' Health Assets Of Each?

It is ironic that a graphic I made a bit ago (smaller graphic, at lower right) -- to highlight the all too common confusion between Germany's Merck KGaA and the US Merck & Co. (wholly unrelated entities) -- may actually now reflect. . . a private equity deal proposal.

Some wags getting ink in the Wall Street Journal tonight are suggesting that Germany's Merck KGaA could combine its birth control and hormone replacement franchises with "our" (U.S.) Merck & Co.'s NuvaRing® (from legacy Schering-Plough via Organon BioSciences), and have a private equity auction of sorts (do go read it all, for context):

. . . .The U.S. Merck offers a trickier prospect. The company certainly hasn't declared its women's health business a noncore asset, but sale rumors have surfaced since the company decided to shut down the former Organon operations in the Netherlands. That plan is opposed by the Dutch employees' council, and a sale might be an alternative to the closure.

Merck & Co's main women's health brands are the contraceptive NuvaRing, with annual sales of around $500 million and double-digit growth, and the infertility treatment Follistim. There has been litigation over NuvaRing's safety in the U.S., however, and Follistim recently lost market exclusivity in the European Union. Its first-half sales fell 2% to $271 million. Those factors could complicate a buyout, even though the U.S. Merck products have much higher sales than the German Merck's portfolio.

The most logical plan for private-equity groups would be to buy both divisions and combine them, thus reaping significant savings by eliminating overlapping sales and other functions. But that would likely entail a price above $2.5 billion — especially considering likely interest from pharma trade buyers — and that would be toward the upper end of leveraged buyouts in the past year.

Still, women's health products are noncyclical and many are hormone-based, leaving them less vulnerable to generic competition, which makes this niche well worth a look. . . .

Probably just idle "wanna-be" deal chatter, but it was New Merck's own Dutch workforce at Organon that first suggested Merck ought to sell the Organon BioSciences operations to another European buyer, rather than close up shop in Oss -- as previously announced. So, we shall see.

Stranger things have happened; in any event, this would be additional after-the-fact empirical evidence that the 2009 Schering-Plough deal was in fact a bust-up, not a merger.

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