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Schering-Plough Steps Up for Organon

Deal is transforming for both Schering and Akzo Nobel

by Rick Mullin
March 19, 2007 | A version of this story appeared in Volume 85, Issue 12

Credit: Michael McCoy/C&EN
Schering-Plough headquarters in Kenilworth, N.J.
Credit: Michael McCoy/C&EN
Schering-Plough headquarters in Kenilworth, N.J.

Schering-Plough has agreed to acquire Organon BioSciences, the human and animal health care businesses of Akzo Nobel, for $14.4 billion.

The deal, which is expected to close this year, marks important milestones for both Schering-Plough and Akzo. It is the first major acquisition by Schering-Plough since CEO Fred Hassan took the helm in 2003 and began implementing a turnaround program for the troubled drug company.

At the same time, the offer puts an end to Akzo's plan to spin off Organon as a separate company through a partial stock offering on the Amsterdam Stock Exchange. Schering-Plough's offer exceeds both Akzo's $9 billion estimate of proceeds from a stock market launch and analysts' recent speculation that a buyer might pay about $10 billion for the business (C&EN, March 5, page 37).

Industry watchers speculated that the sale may put Akzo on the acquisition path, perhaps targeting ICI and its coatings business or Sherwin-Williams. The injection of cash, they say, also makes Akzo an acquisition target itself.

Organon BioSciences had 2006 sales of about $4.9 billion, and Schering-Plough's sales were $10.6 billion. With the acquisition, Schering-Plough will remain the eighth-ranked U.S. drug firm behind Eli Lilly & Co., which had 2006 sales of $15.7 billion.

"Organon BioSciences will be an excellent fit with Schering-Plough strategically, scientifically, and financially," Hassan says. "It builds on our growing strength in primary care, giving us immediate access to central nervous system and women's health care products."

He adds that Organon will fill gaps in Schering-Plough's late-stage pipeline by adding five compounds in Phase III development, including drugs for schizophrenia and infertility.

Martha Freitag, a drug and biotech industry analyst with Argus Research, says pipeline concerns are a major motivator behind the bid. One of Organon's lead candidates, asenapine for schizophrenia, may come with some risk, however. Freitag notes that last year Pfizer ended an asenapine development partnership, claiming that the drug did not fit its commercial portfolio. "Pfizer wouldn't have dropped the alliance if it was all clear sailing," she says.

At Akzo Nobel, CEO Hans Wijers calls the deal "a fundamental step toward our goal of creating a focused, international industrial player." The deal is the culmination of an extensive portfolio restructuring conducted at Akzo over the past two years. In the future, the firm's business core will be composed of coatings and chemicals, with no further dealings in pharmaceuticals.

Mark van der Geest, an analyst with Rabo Securities in Amsterdam, says Akzo may be both predator and prey on the acquisition trail. "One of the private equity consortia that were looking at Organon was also looking at the coatings and specialty businesses" at Akzo, he says. "Akzo will no longer have the pharmaceutical business, and it will have a large cash pile, which makes it more attractive."



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