In a move to expand into the non-prescription medicines market, Bayer buys Merck’s consumer business for $14.2 billion. Merck’s consumer healthcare division, which includes Coppertone sunscreen, the foot care products of Dr. Scholl’s, and the anti-allergy drug Claritin, generates approximately 70% of its income in the US.
Bayer CEO Dr. Marijn Dekkers said:
“This acquisition marks a major milestone on our path towards global leadership in the attractive non-prescription medicines business. At the same time we are leveraging our capabilities in the cardiovascular therapeutic area.”
Bayer has also entered into a global co-development and co-commercialization deal with Merck in the field of soluble guanylate cyclase (sGC) modulators. In this agreement, Merck will pay $1 million up-front to Bayer, plus substantial additional sales milestones payments.
Bayer to become No. 2 OTC seller
According to Bayer, the acquisition of Merck’s consumer healthcare business will place the German company in the number two spot worldwide regarding non-prescription (over-the-counter, OTC) products, just behind Johnson & Johnson and ahead of GlaxoSmithkline.
The combined sales of Bayer’s and Merck’s OTC products amounted to $7.4 billion in 2013, with Merck’s sales contributing about $2.2 billion.
Dekkers added “We are adding significant scope and earnings power to a business that is already delivering strong margins and stable cash flows.”
Bayer will become largest OTC seller in the Americas
The deal will place Bayer as the largest OTC seller in North America and Latin America, says Olivier Brandicourt, CEO of Bayer HealthCare, it will also move the company into top global position in several OTC product categories.
“The strong Bayer brand will help to further leverage the already successful product brands worldwide. We expect particularly strong growth in key countries outside the U.S. where our superior commercial presence will drive sales of the combined business.”
After acquiring Merck’s OTC division, Bayer says it will be a world leader in gastrointestinal and dermatology products, two of the five major non-prescription health care product categories. It will also rise to number two position in the cold, allergy sinus and flu category.
The company will hold its number two position in nutritionals and third place in analgesics.
The $14.2 billion purchase price includes a Bayer payment linked to sales of Afrin and Claritin in certain nations where these medications are still prescription-only products.
The acquisition will be financed with a bridge facility provided by Bank of America, BNP Paribas, Merrill Lynch and Mizuho.
Merck has leading brands
Merck’s consumer healthcare division consists of products in the following categories:
- Cold, allergy sinus and flu – most famous brands are Claritin and Afrin.
- Dermatology (inc. sun care) – the most famous brand is Coppertone.
- Foot health – its most famous brand being Dr. Scholl’s.
- Gastrointestinal – the most famous brand is MiraLAX.
By merging its existing consumer healthcare division with that of Merck, Bayer forecasts an annual savings of approximately $200 million by 2017.
US companies lack pipeline products
Some giant US pharmaceutical companies such as Merck and Pfizer are facing up to patent expiries of major medications and urgently need to deliver new prescription products.
Merck has opted to concentrate its R&D spending on a smaller range of medical areas, sell units (such as consumer healthcare products), and lay off 8,000 workers.
In April, GlaxoSmithkline and Novartis struck a deal in which they’d swap assets and combine their consumer health units. Both GSK and Bayer aim to exploit the rapidly growing OTC market in developed and emerging economies.
2014 has been very active so far regarding pharmaceutical-company proposed deals. Pfizer is trying to buy AstraZeneca, and so far has been told its offer is not good enough. Valeant has placed a bid to acquire Allergan. Baxter is splitting into two independent companies. According to Dealogic, deals worth nearly $163 billion have been proposed so far in 2014, almost half the total for 2013 and triple 2012’s level.