Bayer to Acquire Merck & Co.'s Consumer Care Business for $14.2 Billion; Companies Also Partner in sGC modulators

By Pharma News - DCAT Publisher

May 6, 2014

Bayer has agreed to acquire the consumer care business of Merck & Co., Inc. for $14.2 billion. The move follows Merck's announcement in January 2014 that it was evaluating strategic options for its business. Last week Reckitt Benckiser reported that it had been in discussions with Merck for the business, but that those discussions ended. In other transaction, Bayer has entered into a global co-development and co-commercialization agreement with Merck & Co., Inc. in the field of soluble guanylate cyclase (sGC) modulators, for which Merck & Co., Inc. will make an up-front payment to Bayer of $1 billion, with additional sales milestone payments of up to $1.1 billion. 

"With this transaction, we are acquiring leading product brands that will make Bayer the OTC leader in North America and Latin America and also move us into top global positions in key OTC product categories," said Olivier Brandicourt, CEO of Bayer HealthCare., in a company statement. "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." Upon completion of the acquisition, Bayer said it will  achieve global leadership positions in dermatology and gastrointestinals and advance to the number two position in the cold, allergy, sinus and flu category. Bayer will remain number two in nutritionals and number three in analgesics, according to the company. 

Bayer's purchase price of $14.2 billion includes a payment associated with sales of Claritinâ„¢ and Afrinâ„¢ in certain countries where these products are still prescription-only. The acquisition will be primarily treated as an asset purchase, for which Bayer expects to receive tax savings from the first year after closing.Bayer also expects the integration of the businesses to generate cost synergies, for example, in marketing spend and cost of goods, of approximately $200 million per year by 2017. Revenue synergies from increased commercial presence and leveraging Bayer's global infrastructure in key growth regions to roll out the Merck brands ex-US are expected to amount to $400 million by 2017.Bayer anticipates one-time costs of approximately $500 million related to executing the transaction and combining the businesses, primarily in 2014/2015.The transaction is subject to approval from the relevant antitrust authorities, with closing expected in the second half of 2014. Merck expects after-tax proceeds from the sale of its consumer care business to be between $8 and $9 billion.

Pro forma sales of the combined businesses in 2013 amounted to $7.4 billion. Merck's consumer care business includes brands such as Claritinâ„¢, Coppertoneâ„¢ and Dr. Scholl'sâ„¢. In 2013, Merck's consumer care business generated approximately 70% of its sales in the US. The business is primarily comprised of products in the cold, allergy, sinus & flu, dermatology (including sun care), foot health and gastrointestinal categories. The most important brands are Claritinâ„¢ (allergy), Coppertoneâ„¢ (sun care), Dr. Scholl'sâ„¢ (foot health), MiraLAXâ„¢ (gastrointestinal) and Afrinâ„¢ (cold). Merck's  consumer care business has approximately 2,250 employees and is headquartered in New Jersey. Production is located in Cleveland, Tennessee; Chatsworth, Georgia; Pointe Claire, Quebec, Canada; and Shanghai, China. Sun care and foot health research as well as distribution are based in Memphis, Tennessee. The merged business is to be headquartered at the Bayer site in Whippany, New Jersey.  

Bayer and Merck & Co., Inc. also agreed to enter into a strategic pharma collaboration in the area of cardiovascular diseases with a focus on sGC modulation. The collaboration includes Bayer's Adempasâ„¢ (riociguat), which is approved for the treatment of certain classifications of pulmonary hypertension and is being developed in additional life cycle indications, as well as vericiguat, an investigational compound that is currently being developed in two Phase IIb studies in worsening chronic heart failure.Adempasâ„¢ was approved in 2013 as one of nine orphan drugs approved by FDA. Furthermore, the parties agreed that sGC modulators presently in earlier stages of research and development may be included in the collaboration.

Bayer and Merck & Co., Inc. will equally share costs and profits from the sGC modulators and implement a joint development and commercialization strategy. Bayer will lead the commercialization for Adempasâ„¢ in the Americas while Merck & Co., Inc. will lead the commercialization outside the Americas. For vericiguat and other potential investigational sGC modulators, Bayer will lead the commercialization outside the Americas while Merck & Co., Inc. will lead the commercialization in the Americas. Both companies will have the option to co-promote Adempasâ„¢ and the follow-on sGC modulators in each others' territories. For all products and candidates included in the agreement, both companies will share in development costs and profits on sales and will have the right to co-promote in territories where they are not the lead.

Merck & Co., Inc. will make payments to Bayer of up to $2.1 billion comprising an up-front payment of $1.0 billion (EUR 0.7 billion), and sales milestone payments of up to $1.1 billion related to future collective sales of certain collaboration compounds including Adempasâ„¢.

Source: Bayer and Merck & Co.