Warner-Lambert, Schering-Plough Hold Merger Talks, Person Says
Bloomberg News
May 20, 1999, 2:25 p.m. ET
Warner-Lambert, Schering-Plough Hold Merger Talks, Person Says
New York, May 20 (Bloomberg) -- Warner-Lambert Co., seller
of the top U.S. cholesterol-reduction drug, is holding merger
talks with Schering-Plough Corp., maker of the world's No. 1 anti-
allergy pill Claritin, a person familiar with the talks said.
Discussions have gone on over the past two years and have
intensified in recent weeks, the person said. No agreement is
pending, though, and the talks could founder, the person said.
If they combined, the company would be among the world's 10-
biggest drugmakers with a stock market value of about $125
billion. Together, they would be better able to spend the
billions of dollars needed to find and market new drugs. Schering-
Plough's dependence on Claritin, which could lose patent
protection in three years, makes the company a merger candidate,
said U.S. Trust Co. analyst Jack Lafferty.
''It would be natural,'' said Lafferty, whose firm holds
about 4.7 million Schering-Plough shares, according to regulatory
filings.
The two companies declined to comment, though Warner-
Lambert's top executive discussed mergers after an analysts'
meeting this week.
''Never say never, but we have no reason to do something
now,'' said Lodewijk de Vink, Warner-Lambert's new chairman and
chief executive.
If the companies remain independent, they risk falling
behind rivals in the hunt for new medicines. Alone, neither can
match the money that larger competitors are spending on drug
research and development. Developing a single new drug can cost
as much as $500 million.
Pfizer Inc., maker of the anti-impotence pill Viagra, will
spend $2.8 billion on research this year. Rival Merck & Co., the
No. 1 U.S. drugmaker, will spend $2.1 billion.
Research & Development
The larger drug companies can hire more scientists and buy
more of the latest equipment than Madison, New Jersey-based
Schering-Plough, whose annual research budget topped $1 billion
for the first time last year. Schering-Plough plans to boost its
budget 15 percent in 1999. Warner-Lambert, based in Morris
Plains, New Jersey, will spend $1.2 billion on research this
year.
In addition, a combined company would be able to save $1
billion to $2 billion a year in overhead costs, said Hemant Shah,
an independent drug industry analyst. Shah, who used to work for
Merck, has a ''buy'' rating on Warner-Lambert and an
''attractive'' rating on Schering-Plough.
If the companies joined, Warner-Lambert would gain the
marketing expertise that helped Schering-Plough turn Claritin
into a best seller that accounted for a third of the company's
$8.1 billion in 1998 revenue. Schering-Plough would land a
partner able to help it weather the possible loss of the Claritin
patent.
Cheaper Than Claritin
Cheaper versions Schering-Plough's Claritin could arrive as
early as 2002, the earliest that the patent could expire.
Schering-Plough is trying to find ways to extend the patent
protection until 2014, said Alex Zisson, an analyst with
Hambrecht & Quist.
Claritin's $2.3 billion in 1998 sales contributed more than
30 percent of the company's $1.8 billion in annual profit, he
said. Schering-Plough boosted Claritin sales with a $100 million
consumer advertising campaign.
Both De Vink and Schering-Plough Chairman Richard Jay Kogan
have held their posts less than a year, which could complicate
any negotiations over who would head a merged company.
De Vink, 54, is a former president of Schering-Plough
International and was No. 3 in the company behind Kogan, 57, who
was then No. 2.
Warner-Lambert elevated de Vink to chief executive and
chairman on May 1. Before joining Warner-Lambert in 1988, he
headed Schering-Plough's international unit. Kogan has been
Schering-Plough's chief executive since 1996 and became chairman
in late 1998.
Pressure to Merge
Some analysts and investors say Warner-Lambert and Schering-
Plough have plenty of room to go it alone for now. Shares of both
rose an average of 46 percent annually in the past five years,
more that the 27 percent annual gain in the Standard & Poor's 500
Index.
Even with concerns about Claritin's patent expiration,
Schering-Plough faces little pressure to merge, said Linda
Miller, manager of John Hancock's Global Health Sciences fund.
''I don't think that you can say that they need to do
something now because Claritin is going off patent three or five
years from now,'' Miller said.
Warner-Lambert's profits, meanwhile, are rising with sales
of Lipitor, which more than doubled in 1998 to $2.2 billion.
Warner-Lambert yesterday said Lipitor sales could reach $4
billion in 2000, making it one of the best-selling drugs ever.
The company also is the world's biggest maker of mouthwash with
its Listerine product line.
Sales of its diabetes pill Rezulin could decline after
rivals introduce new drugs this year. Rezulin, which Warner-
Lambert licenses from Japan's Sankyo Co., has been linked to
about 38 cases of death and serious liver damage.
Warner-Lambert this week completed the $2.1 billion purchase
of Agouron Pharmaceuticals Inc., a biotechnology company that
makes the No. 1 protease inhibitor drug for treating AIDS.
While he discussed the Agouron purchase with analysts, De
Vink said his company would consider more acquisitions.
Warner-Lambert shares fell 5/8 to 66 3/8 in midafternoon
trading. Schering-Plough fell 7/16 to 47 1/16.
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