Bayer has agreed to acquire Merck’s consumer care business for $14.2 billion. Bayer also has entered into a global co-development and co-commercialization agreement with Merck in soluble guanylate cyclase (sGC) modulators, for which Merck will make an up-front payment to Bayer of $1 billion, with substantial additional sales milestones.
The acquisition will give Bayer the global number two position in non-prescription (over-the-counter, OTC) products following recently announced consolidations in this highly attractive and growing healthcare industry segment, and will significantly enhance Bayer’s business across multiple therapeutic categories and geographies. Merck's consumer care business includes the Claritin, Coppertone and Dr. Scholl’s brands. Pro forma sales of the combined businesses in 2013 were $7.4 billion, with Merck’s business contributing approximately $2.2 billion.
“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. “We expect particularly strong growth in key countries outside the U.S. where our superior commercial presence will drive sales of the combined business.”
The purchase price of $14.2 billion includes a payment associated with sales of Claritin and Afrin in certain countries where these products are still prescription-only. The acquisition will be treated primarily as an asset purchase, for which Bayer expects to receive significant tax savings from the first year after closing.
Bayer also expects the integration of the businesses to generate significant cost synergies, including marketing spend and cost of goods, in the region of $200 million per year by 2017. Revenue synergies from increased commercial presence and leveraging Bayer’s substantial global infrastructure in key growth regions to roll out the Merck brands ex-U.S. are expected to amount to $400 million by 2017. Bayer anticipates one-time costs of approximately $0.5 billion related to executing the transaction and combining the businesses, primarily in 2014/2015.
Merck’s consumer care business is a major global OTC company with strong presence in North America, the largest OTC market in the world. In 2013, Merck’s consumer care business generated approximately 70% of its sales in the U.S., where it also holds leading brand positions. The business primarily is comprised of products in the cold, allergy, sinus and flu, dermatology (including sun care), foot health and gastrointestinal categories. The merged business is to be headquartered at the Bayer site in Whippany, N.J.
Bayer and Merck also agreed to enter into a strategic pharma collaboration in cardiovascular diseases with a focus on sGC modulation. Cardiovascular diseases represent one of the most significant therapeutic areas. Despite previous achievements there remains high medical need in various diseases such as certain forms of pulmonary hypertension or heart failure. Novel modulators of the sGC pathway may have the potential to address this need. However, major development efforts and clinical programs are required to fully explore the benefits of these novel compounds.
The collaboration includes Adempas (Riociguat), which already 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 currently is being developed in two phase IIb studies in worsening chronic heart failure. Furthermore, the parties agreed that sGC modulators presently in earlier stages of R&D may be included in the collaboration.
Bayer and Merck will share costs and profits from the sGC modulators equally and implement a joint development and commercialization strategy. Bayer will lead the commercialization for Adempas in the Americas, while Merck 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 will lead the commercialization in the Americas. Both companies will have the option to co-promote Adempas and the follow-on sGC modulators in each others’ territories.
Merck will make payments to Bayer of up to $2.1 billion, comprising an up-front payment of $1 billion and sales milestone payments of up to $1.1 billion related to future collective sales of certain collaboration compounds including Adempas.