Merck, Schering-Plough Follow Wyeth and Pfizer Down the Aisle

Today's proposed acquisition of Schering-Plough by Merck ought to bring benefits to both companies and their shareholders, according to Wharton marketing professor Jehoshua Eliashberg, whose recent research has examined strategic issues in the pharmaceutical industry. Because one of those benefits will be efficiency, he said this morning, he sees a gloomier outcome for some of the more than 100,000 employees of the two firms.

"The companies had to consolidate to survive — they had to consolidate to match Wyeth and Pfizer," Eliashberg said. Wharton professors Patricia Danzon and Jagmohan Raju discussed that proposal with in a Knowledge at Wharton podcast last month. Merck and Schering, Eliashberg said, will benefit from lower costs for research and development, additional manufacturing capacity and broader reach in both product and geographic markets. "There's a lot that makes sense here."

The biggest beneficialry in the deal may be Merck, which would pay $41 billion for Schering-Plough. Eliashberg noted that the merger would give Merck, headquartered in Whitehouse Station, N.J., access to a "much broader and deeper pipeline" of new products as patents expire on some of its most profitable drugs, including the asthma medicine Singulair, for which patent protection ends in 2012. "Schering [based in Kennilworth, N.J.] has has more later-stage drugs [closer to FDA approval] in its pipeline than Merck." In addition, "Merck's strength in the U.S. market is complimentary to Schering-Plough's reach in overseas markets, especially in emerging markets." 

The efficiencies that are often inherent in such mergers will help the companies keep a lid on prices, which could become a more critical issue should health care costs and access receive the  level of government attention that the Obama Administration has promised, he added.

But those efficiencies will almost certainly cost jobs. Neither of the companies addressed job cuts in today's announcement, but Merck has laid off 750 U.S. sales representatives so far this year, and is in the middle of a cost-cutting program expected to produce as much as $4.2 billion in savings by 2012, according to The Wall Street Journal. Schering-Plough has a $1.5 billion cost-cutting effort.

"I find it hard to believe there will be no layoffs as a result of this merger," Eliashberg said.