By Michael Calia and Neetha Mahadevan
Merck & Co. agreed to sell its consumer-care business,
including the allergy-treatment Claritin and nasal decongestant
Afrin, to Bayer AG for $14.2 billion.
The deal, which includes collaboration on certain drug
development, will allow Merck to focus on therapeutic areas where
it feels it is strongest, including drugs for cancer and diabetes
as well as vaccines.
Meanwhile, Bayer said the deal makes it the second-biggest
seller of over-the-counter products in the world and the biggest
one in North America, where the Merck business generated about 70%
of its sales last year. Combined, the consumer care divisions of
Bayer and Merck had pro forma sales of about $7.4 billion in
2013.
The purchase is Bayer's second-biggest after buying Schering AG
for $17 billion in 2006.
"This acquisition marks a major milestone on our path towards
global leadership in the attractive nonprescription medicines
business," Bayer Chief Executive Marijn Dekkers said. Bayer's
consumer-health segment already includes Aspirin and skin care
product Bepanthen/Bepanthol.
The move comes amid a wave of pharmaceutical deals as companies
look to bolster and retool product portfolios in an effort to focus
on their perceived strengths.
Merck, which had said earlier in the year that it was looking to
sell the consumer business, expects the deal to close during the
second half of this year, with after-tax proceeds of between $8
billion and $9 billion.
Bayer said it plans to finance the deal with a bridge facility
provided by Bank of America, BNP Paribas and Mizuho that will be
syndicated to a larger group of banks. The company may not be done
making deals; it has been speculated that Bayer may look to sell
its plastics and chemicals business.
Bayer has made no secret of its ambition to build up its
health-care portfolio with bolt-on acquisitions. Last year, it
bought Germany's Steigerwald and China's Dihon Pharmaceuticals, two
herbal medicine companies. It also recently spent $2.86 billion for
Norway's Algeta ASA, its partner on a new prostate cancer
treatment.
According to two people familiar with the matter, Bayer outbid
privately-held rival Boehringer-Ingelheim for the Merck assets. It
also edged out consumer-goods company Reckitt Benckiser Group PLC,
which pulled out of discussions last week.
As part of the deal announced Tuesday, Bayer and Merck also
agreed to collaborate on the development of therapies for
cardiovascular disease, including hypertension drug Adempas, which
is marketed in the U.S., Europe and Japan.
The companies will split costs and profits from the
collaboration, while creating a joint development and marketing
plan, Merck said.
The collaboration also includes the clinical development of
Bayer's vericiguat, a treatment for worsening heart failure
currently in Phase 2 trials, among other early-stage compounds in
development at Bayer. Bayer will receive a $1 billion upfront
payment with the potential for additional milestone payments upon
certain sales goals, Merck said.
Merck, meanwhile, also will make its early-stage compounds for
cardiovascular disease treatment available under similar terms, the
company said.
Ever since Merck inherited the consumer business in its 2009
acquisition of Schering-Plough, analysts have speculated that the
health-care giant would unload it in some fashion, perhaps through
a sale or joint venture.
Merck reported global consumer-care sales of $1.9 billion for
2013, or about 4% of total company revenue of $44 billion. The U.S.
accounted for $1.33 billion of the consumer unit's sales total,
with international markets contributing $568 million. The biggest
product in the portfolio is an over-the-counter version of allergy
drug Claritin, which had sales of $471 million last year.
The division also includes MiraLAX constipation medicine, Dr.
Scholl's foot-care products, Coppertone sunscreens, and Lotrimin
and Tinactin antifungals. In the first quarter that Merck reported
last week, sales in the consumer-care segment fell 4% to $546
million.
Merck has been coping with an aging pipeline and competition for
its top-selling product, Januvia, and it has suffered several
setbacks trying to develop new drugs.
Bayer and Merck are among a handful of major pharmaceutical
firms taking part in a frenzy of deal-making activity lately, as
the companies seek to bolster their product portfolios.
For instance, Pfizer Inc. has been pursuing its British rival
AstraZeneca PLC since November, but AstraZeneca has rejected the
advances. Last week, AstraZeneca said Pfizer's most recent cash and
stock proposal "substantially" undervalued the company.
Additionally, a handful of complex, multibillion-dollar deals
and joint ventures involving Novartis AG, GlaxoSmithKline PLC and
Eli Lilly & Co. were unveiled late last month. More broadly in
the health-care market, Zimmer Holdings Inc. agreed to pay $13.35
billion for fellow medical-device maker Biomet Inc.
Ben Fox Rubin contributed to this article.
Write to Michael Calia at michael.calia@wsj.com
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