Drug firm being sold

The Baltimore Sun

Big Pharma got bigger yesterday with Merck Co.'s announcement that it will acquire rival Schering-Plough in a cash-and-stock transaction worth $41.1 billion. And it is being made easier courtesy of U.S. taxpayers.

Faced with tough competition from generics, fewer blockbuster drugs in development and the prospect of a government overhaul of the U.S. health care system, drug makers are consolidating.

In January, the world's top pharmaceutical company, Pfizer, made a $68 billion bid for Wyeth. Meanwhile, Roche is in hot pursuit of California-based Genentech. Yesterday, the Swiss drug maker, which has a majority stake in the San Francisco biotechnology company, raised its hostile offer to $93 a share to purchase the remainder of Genentech's shares.

The Merck-Schering-Plough deal would create the world's second-largest pharmaceutical company with combined sales of about $47 billion annually. Structured as a so-called "reverse merger," Schering-Plough will continue as the surviving corporation although the new entity will keep the Merck name. The new company will be more diversified, have a larger global reach and a fatter array of new products in development.

"The combined company will benefit from a formidable research and development pipeline," said Richard T. Clark, Merck's chairman, president and chief executive officer, who will lead the combined company.

But what is good for the drug makers is not helping the U.S. job market. The pending deals are expected to result in at least 35,000 mostly U.S. job losses - helped in part by the government's bailout efforts.

Banks that have received billions in federal dollars to encourage them to make loans - JP MorganChase, Goldman Sachs, Citigroup and Bank of America - are lending money to Pfizer and Merck, who in turn are planning aggressive cost-cutting.

In the case of Pfizer, the country's largest drug maker, the takeover of vaccine-specialist Wyeth is expected to cost at least 19,000 jobs, including some in the companies' overseas operations. Merck's takeover of Schering-Plough should yield about 16,000 job cuts. Combined, the cuts represent about 15 percent of those companies' total work force.

The deals would be virtually impossible to complete if the banks had not received money from the Treasury Department under the Troubled Asset Relief Program. The bailout enabled them to lend the drug makers a combined $30 billion.

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