Schering Shifts Away from Cholesterol; Tykerb Tuesday
Drugmaker Schering-Plough is buying Organon Biosciences for about $14.5 billion. Organon is part of the Dutch paint and chemical company Akzo Nobel whose shares are at a new high today on the news. Schering Chairman and CEO Fred Hassan has been saying for quite some time that he's "very much in the deal flow" on company conference calls and in interviews with CNBC, so the fact that he's making a big acquisition doesn't come as a huge shock.
That said, many analysts had seen (and still see) Schering-Plough itself as an M & A target. Hassan told CNBC on "Worldwide Exchange" this morning in a live interview from The Netherlands that he's had his eye on Organon for a long time and decided to make a move now because it's a "very valuable asset". But at least a couple of analysts are questioning just how valuable an asset. Organon has five drugs in late-stage development including a schizophrenia drug that Pfizer recently gave back to Organon from a previous partnership deal.
So, what did Schering-Plough see it its due diligence about the potential for that product that Pfizer didn't see? Hassan says the deal will add ten cents "or more" to earnings per share in the first year. It's expected to close sometime in the second half of this year. Another curious factor: in his most recent interview at CNBC prior to today Hassan was asked about the rumors of a Bristol-Sanofi merger. He cautioned that international integrations are very difficult. But today he says the cultural fit between Schering and Organon is a good one and that his experience putting Pharmacia and Upjohn together will serve him well. Hassan had to do something.
The bottom fell out of the company about five years ago when its mega-blockbuster allergy pill Claritin went generic and over-the-counter. And lately some analysts were becoming increasingly concerned that Schering was making the same mistake -- this time with its cholesterol franchise of Zetia and joint-venture combo pill of Zetia and Merck's Zocor called Vytorin. Bank of America analyst Chris Schott estimates the cholesterol business accounts for 60 to 70% of Schering's earnings. So, while he and others question the pipeline potential at Organon, at least, they say, it shows Schering is trying to diversify and reduce its over-dependence on one or two drugs again.
Tomorrow could be a big day for the breast cancer community, GlaxoSmithKline and investors. The FDA is expected to approve GSK's new breast cancer pill Tykerb. It's designed for patients who have failed treatment using Herceptin from Genentech and Roche. Look for my reports on the drug tomorrow starting on "Squawk Box".
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