Deal would give Merck No. 2 status

TRENTON, N.J. – Merck & Co. is buying Schering-Plough Corp. for $41.1 billion in a deal that gives Merck key new businesses, access to a promising pipeline of new products and the chance to further cut costs, including eliminating about 16,000 jobs.

Merck hopes the cash-and-stock deal, which would vault it to the world’s No. 2 drugmaker, helps it better compete in a drug industry facing slumping sales, tough generic competition and intense pricing pressures.

The deal announced Monday would unite the maker of asthma drug Singulair with the maker of allergy medicine Nasonex and form the world’s second-largest prescription-drug maker. Merck and Schering are already partners in a pair of cholesterol fighters, Vytorin and Zetia, although concerns about safety and effectiveness have hurt sales.

The companies say the deal will boost earnings per share in the first full year after it closes, and they’ll be able to save $3.5 billion a year after 2011.

The news comes six weeks after Pfizer Inc. announced a $68 billion deal to acquire Wyeth and on the same day as reports that Genentech Inc. is close to striking a $95-a-share sale to cancer drug partner Roche, after rejecting a deal for months.

Erik Gordon, an analyst and professor at University of Michigan’s Ross School of Business, said the Obama administration’s health care plans have much to do with the recent spate of mergers and their focus on cost-cutting.

“If anything, the pressures for these kind of mergers … are stronger now that people are hearing what the new administration is thinking about for health care reform,” Gordon said.

Merck and Schering-Plough, along with most rivals, are eliminating thousands of jobs and restructuring to cut costs.

“Eventually, we anticipate an approximate 15 percent reduction in the combined company’s head count,” Merck spokeswoman Amy Rose said, implying nearly 16,000 fewer jobs from their current total of 106,000.

Merck is a top maker of pills and vaccines, and acquiring Schering-Plough will add strength in the prized area of biologic drugs, thanks to its 2007 acquisition of Dutch biopharmaceutical company Organon BioSciences NV. These drugs, made from living cells, command high prices, are insulated from generic competition and are widely seen as the biggest growth area.