March 10 (Bloomberg) -- Merck & Co.’s $41.1 billion takeover of Schering-Plough Corp. puts pressure on drugmakers Sanofi- Aventis SA and AstraZeneca Plc to make megamergers of their own to gain new products.
Merck’s agreement, which follows New York-based Pfizer Inc.’s $68 billion bid for Wyeth, of Madison, New Jersey, and Swiss drugmaker Roche Holding AG’s $45.7 billion offer for Genentech Inc., of South San Francisco, will propel other drugmakers fearful of missing opportunities, said David Moskowitz, an analyst with Caris & Co. in Washington.
The world’s biggest drugmakers, armed with about $100 billion in cash and short-term investments, are seeking acquisitions to replace $84 billion in sales from products nearing the end of their patent life. The takeover of Schering- Plough, of Kenilworth, New Jersey, by Whitehouse Station, New Jersey-based Merck would give Merck a larger experimental pipeline and products unhindered by imminent patent losses.
“Most companies now are pretty cheap, really, and anyone sitting on cash can make a bid,” said Nick Turner, a Mirabaud analyst in London, in an interview yesterday. “This could be a trigger for a wave of mergers and acquisitions.”
Paris-based Sanofi may target Bristol-Myers Squibb Co., of New York, which sells the French company’s Plavix blood thinner and Avapro hypertension treatment in the U.S. Other possible suitors for Bristol-Myers include AstraZeneca, of London, and Johnson & Johnson, of New Brunswick, New Jersey, Moskowitz said.
J&J may also make a bid for Schering-Plough, Sanford C. Bernstein analyst Tim Anderson said in a note to clients.
Bristol Next
Bristol-Myers rose 80 cents, or 4.2 percent, to $19.81 at 1:08 p.m. in New York Stock Exchange composite trading, after climbing 3.6 percent yesterday on investor speculation it may be a target. The U.S. drugmaker has bolstered its pipeline of experimental drugs, making it a candidate for acquisition, Moskowitz said.
AstraZeneca rose 52 pence, or 2.3 percent, to 2,275 pence in London trading. Sanofi gained 53 euro cents, or 1.3 percent, to 40.83 euros in Paris.
“Bristol-Myers is next,” Moskowitz said in a telephone interview yesterday. “There is more consolidation to come.”
Brian Henry, a spokesman for Bristol-Myers, and Geoffroy Bessaud, a spokesman for Sanofi, declined to comment on acquisition strategies. Sarah Lindgreen, a spokeswoman for London-based AstraZeneca, said the company doesn’t comment on market speculation. Bill Price, a J&J spokesman, declined to comment.
J&J Chief Executive Officer William Weldon said in a Jan. 20 interview he has a list of takeover targets and is evaluating “unique opportunities” and “big mergers and acquisitions.”
Sanofi’s Viehbacher
Sanofi Chief Executive Officer Chris Viehbacher, while not ruling out a large deal, has said he will seek “small to medium- sized” acquisitions to replace revenue that will be lost to generic competition. He told CNBC in a March 5 interview the French company’s partnership with Bristol-Myers is “sufficient” for now.
Other drugmakers have also said they will avoid large mergers. Andrew Witty, chief executive officer of London-based GlaxoSmithKline Plc, said last month that a megamerger would “distract” the company. Glaxo will rely on agreements valued from about $50 million to the “low billions,” Witty said in a January interview.
Chief Executive Officer John Lechleiter, chief executive officer of Eli Lilly & Co., of Indianapolis, Indiana, said his company is shopping for small to mid-sized acquisitions after buying New York-based ImClone Systems Inc. in November for $6.3 billion.
Novartis’s Vasella
Novartis AG’s CEO Daniel Vasella said that the Swiss drugmaker will continue to make small acquisitions to replace products facing generic competition. AstraZeneca CEO David Brennan has also said he favors smaller licensing deals to shore up its pipeline of new products.
The heads of Bristol-Myers and Abbott Laboratories, of Abbott Park, Illinois, have made similar statements.
Licensing entanglements between pharmaceutical companies may complicate future deals.
Schering-Plough sells the anti-inflammatory drug Remicade outside the U.S., and its agreement allows J&J to claim all rights if Schering-Plough’s ownership changes, said Lawrence Biegelsen, a Wachovia Capital Markets analyst in New York, in a note yesterday. Remicade generated $2.19 billion for Schering- Plough last year, 16 percent of company revenue.
Merck said the acquisition won’t affect Schering-Plough’s agreement to share revenue on Remicade with J&J. Merck said it will keep the rights because the deal is structured as a reverse merger, meaning that for accounting purposes, Schering-Plough rather than Merck will be the surviving corporation.
J&J Bid Unlikely
A bid by J&J is unlikely, as J&J isn’t known for hostile bids, said Les Funtleyder, a Miller Tabak & Co. analyst in New York, in an interview. Schering-Plough’s products seem a better fit for Merck, though a fight can’t be ruled out, he said.
“J&J has been oddly silent in this sort of megamerger festival we’ve had,” Funtleyder said. “J&J, I’m sure at this moment, is looking at their options, legal and strategic.”
Bristol-Myers doesn’t have so-called change-in-control agreements, the company has said. If the drugmaker is bought, it retains rights to sell Plavix, its best-selling drug, with $7.1 billion in sales last year. It also maintains sales of the cancer drug Erbitux, marketed with Lilly, the experimental blood thinner Apixaban, sold with Pfizer, and a diabetes treatment partnership with AstraZeneca.
Pfizer has lost 60 percent of its value since completing its acquisition of Pharmacia Corp. in 2003. Glaxo’s shares have declined 46 percent since the U.K. drugmaker bought SmithKline Beecham Plc in 2000.
“If you can name a merger that worked, I’ll personally give you a bouquet of flowers,” Mirabaud’s Turner said.
Market Data 
Markets 
AI
