Monday, March 12, 2007

Schering-Plough Spends Big on Organon

$14.5 billion sure doesn't go as far as it used to.

Schering-Plough announced in the wee hours of Monday morning that it would spend that amount to acquire Organon BioSciences, the biopharmaceuticals unit of the Dutch conglomerate Akzo Nobel NV. The price tag, at more than 4x Organon's 2006 sales, was a couple billion dollars higher than analysts expected for any trade sale or listing of the company. Akzo is now free to focus on its chemicals and paints businesses, and the sale has already sparked rumors that it would seek to spend its Organon proceeds on buying companies in those spaces.

Organon, which specializes in women's health and CNS disorders, was slated to IPO on Euronext later this month, and was rumored to be entertaining private equity offers for the business. Those rumors prompted a few 'reconfirmations' that an IPO was still in the offing--basically indicating the offers to buy Organon weren't sweet enough.

So what is Schering-Plough getting for its hard-earned cash? It's hard to believe that the acquisition will vault the company back into the top tier of Big Pharma companies, though it may dissuade others from attempting their own takeover bids of the NJ firm. Organon's forte is contraceptives, though that business isn't exactly booming.

Analysts have suggested that perhaps Schering-Plough attaches more value to Organon's CNS projects than the market does (or for that matter than Pfizer does--Pfizer returned to Organon rights to the Phase III antipsychotic asenapine late in 2006, when the drug disappointed in a pivotal trial). Perhaps, though Organon's track record in pivotal trials has not been sterling over the past few years. Organon has recently rebooted itself as a biologics focused firm--adding an R&D facility the Boston area and signing a few early-stage deals--though those efforts will take years to come to fruition.

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