Tuesday, March 22, 2011

That Hissing Sound You're Hearing, From Kenilworth, NJ. . .

. . .Is more of the supposed New Merck "synergy/headcount reduction" savings (from the Schering-Plough bust up) -- escaping.

The plan was -- under Sabatino and Kuhlik -- that most of the headcount expense associated with the Schering-Plough/Intervet Animal Health businesses would ultimately be off-loaded to the New Merial joint venture -- a 50-50 affair with Sanofi-Aventis. Delever the expenses, at New Merck, and ramp up a net revenue stream, out of the 50-50 New Merial JV. That was the idea. It is now clear, that is not going to transpire (I repeatedly said it seemed dubious from a regulatory perspective, even then -- given the market power these two players would wield, when combined.).

Accordingly, New Merck is going to have to operate the old Intervet Animal Health assets, and accept the cost (overhead, R&D and headcount) of the same. This is likely yet another reason CEO Frazier withdrew guidance for 2011-2012, a couple of months ago. But make no mistake, this decreases the expected savings from the Schering-Plough deal, and in a material fashion, too.

Here's a bit of the Reuters reporting this morning:

. . . .The move sets back the French and U.S. drugmakers' plans to achieve economies of scale in the consolidating animal care industry, and comes a month after they delayed the long-running deal's closing by another six months.

It is also a blow to companies that had hoped to snap up assets with about $500 million in annual revenue that the pair would have had to sell to clear regulatory hurdles. . . .

Yet another Hassan-Sabatino headache, handed to Merck, now over a year and a half post closing. Picture much excited hand waiving, and a "we'll be able to figure it out in 2010!" repeatedly chanted, out of the law department in Kenilworth, during the summer of 2009 -- as the first step of the Merial JV took shape. Sheesh.


Anonymous said...

why would I-SP want to be part of a Meriel-ISP when 1/4 of Meriels revenue will vanish on April 1st due to the patent expiry of Frontline? + Never made logical sense from an ISP side to combine. forget the headcount - not a huge issue when 8k people bring in 2.9 billion $. That is 400k sales per person, thats better than most pharma co's at growth stage. I think Merck is laughing, sa was supposed to get 750million if it didn't happen. also, sa is sucking up genzyme - AH means nothing to them now.

Anonymous said...


Good AH review.

Who will buy Pfizer AH? Me thinks Novartis!

Anonymous said...

Wonder if they'll look to get rid of consumer business quickly to reduce costs. It will require significant investment to grow globally. Not as profitable as Animal Health.