Merck, Schering To Merge In $41 Billion Deal
STEVE INSKEEP, Host:
The drug company Merck has announced plans to buy Schering-Plough. It's a deal valued at more than $41 billion in cash and stock. The merger is the second in the pharmaceutical industry in recent weeks, and that reflects a shift to bigger and more diversified companies. NPR's Wendy Kaufman has more.
WENDY KAUFMAN: Cornell University's Sean Nicholson says Merck had amassed a sizeable amount of cash, so had Pfizer, which recently announced it would buy Wyeth in a deal valued at $68 billion. That made the deals doable, even in a credit-strapped economy.
SEAN NICHOLSON: These companies have been very profitable for years and years, and even though they have dividends and they've been investing 15 to 20 percent of their sales back into R and D, they've been sufficiently profitable that they've been able to build up cash reserves. So that's what they're using it on.
KAUFMAN: But the challenges for the big traditional drug companies are huge, with or without new partners. Nicholson says investors used to think drug companies were largely recession proof, but that's no longer the case.
NICHOLSON: For the first time in recent memory, there's been two consecutive quarters of decreases in the number of prescriptions that are filled in the U.S.
KAUFMAN: What's more, when consumers do buy drugs, they're more likely to choose lower-price generics, not the brand name drug. Terry Hisey, vice chairman and the life sciences leader at Deloitte LLP, a consulting firm, says the pharmaceutical industry's old business model of relying on one or two blockbuster drugs is no longer viable. In addition to the generic threat, patents on many blockbusters are about to expire, and there's little in drug companies' pipelines to generate that kind of revenue.
TERRY HISEY: I think what we'll see as we go forward, particularly with the advent of personalized medicine or targeted therapies - call it what you want - is that we're going to move from an era of blockbusters to an era of niche-busters.
KAUFMAN: Professor Mike Nichol at the University of Southern California suggests that the deals involving Merck and Schering-Plough, Wyeth and Pfizer and the possible deal between Roche and Genentech reflect an industry in transition.
MIKE NICHOL: I think the transformative moment has been happening over the last three or four years, and it's going to get more acute as we look into the future.
KAUFMAN: Wendy Kaufman, NPR News.
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