Big Pharma got bigger on Monday with Merck Co.'s announcement that it would acquire rival Schering-Plough Corp. in a cash-and-stock transaction worth $41.1 billion. And the deal is being made easier by U.S. taxpayers.
Faced with tough competition from generics, fewer potential blockbuster drugs in development and the prospect of a government overhaul of the U.S. healthcare system, drug makers are consolidating.
In January, the world's largest pharmaceutical company, Pfizer Inc., made a $68-billion bid for Wyeth. Meanwhile, Roche Holding is in hot pursuit of California-based Genentech Inc. On Monday, the Swiss drug maker, which already owns most of the South San Francisco biotechnology company, raised its hostile offer to $93 for each of Genentech's remaining shares.
A deal between Merck and Schering-Plough would create the world's second-largest pharmaceutical company with combined sales of about $47 billion in 2008. Structured as a so-called reverse merger, the transaction would have Schering-Plough continue as the surviving corporation, although the new entity would keep the Merck name. The new firm would be more diversified, have a larger global reach and a fatter array of products in gestation.
"The combined company will benefit from a formidable research and development pipeline," said Merck Chairman and Chief Executive Richard T. Clark, who will lead the combined company.
But what may be good for the drug makers isn't helping the U.S. job market. The pending deals are expected to result in at least 35,000 job losses, mostly in the U.S. -- helped in part by the government's bailout efforts.
Banks that have received billions of federal dollars to encourage them to make loans -- JPMorgan Chase & Co., Goldman Sachs Group, Citigroup Inc. and Bank of America Corp. -- are lending money to Pfizer and Merck, who in turn are planning aggressive cost-cutting.
In the case of Pfizer, a takeover of vaccine specialist Wyeth would be expected to cost at least 19,000 jobs, including some in the companies' overseas operations. A Merck takeover of Schering-Plough should yield about 16,000 layoffs. Combined, the cuts represent about 15% of those companies' total workforces.
The deals would be virtually impossible to complete if the banks had not received money from the Treasury Department under the Troubled Asset Relief Program. The bailout enabled them to lend the drug makers a combined $31 billion.
