Organon unit to be acquired

'No cuts planned' for Organon facilities in Triangle, according to spokesman

NEW YORK -- Schering-Plough said Monday it will buy the drug unit of Netherlands-based Akzo Nobel for $14.4 billion, giving the U.S. pharmaceutical company an array of women's health products while bolstering its animal health business and late-stage pipeline of experimental medicines.

The approximately $4.9 billion in revenue from Organon Biosciences would bulk up Schering-Plough's sales by about half, and analysts applauded the New Jersey's drug maker's effort to diversify and lessen its dependence on its cholesterol franchise. But they also expressed concern about the deal's debt and one key late-stage product, asenapine.

Pfizer returned the rights to asenapine, a treatment schizophrenia and bipolar disorder, to Organon last year after it had mixed results in clinical trials. On Monday, Standard & Poor's Rating Services placed its rating on Schering-Plough on CreditWatch with negative implications because of the debt the deal will add while Moody's Investors Service placed the Ba senior unsecured rating under review for possible downgrade.

Schering-Plough chief executive Fred Hassan was upbeat about the deal.

"In a consolidating industry, there are very, very, very few companies left which have strong research ... and a strong pipeline of late projects and new projects that have a long patent life," Hassan said during a conference call.

Hassan said the deal may result in some job cuts, but he did not specify any numbers. Organon has 19,000 employees, while Schering-Plough has 33,500.

Organon's Diosynth Biotechnology subsidiary has three facilities in the Triangle where it employs about 750 workers. The company has research operations in Cary and Morrisville, as well as a manufacturing plant in Research Triangle Park that mostly produces drugs for other companies.

"Those employees needn't fear, there are no cuts planned" following the merger, spokesman Keith Campbell said.

The acquisition will be financed through a mix of cash, debt and equity, Schering-Plough said. New debt is expected to total between $6 billion and $8 billion.

The deal moves Schering-Plough into two new treatment areas: women's health and the central nervous system. Sales of Organon's contraceptives, which include NuvaRing and Implanon, totaled $877 million. Revenue from Organon's pharmaceutical business, which includes an infertility treatment and a muscle relaxant, reached $3.4 billion last year.

"They are good solid products that can be tweaked to add more revenue," said Steven Brozak, president of WBB Securities an independent broker/dealer specializing in health care.

Organon's animal health unit sales were approximately $1.5 billion last year. Hassan said the unit will complement the company's existing business, creating a leader in the field.

Prudential Securities analyst Tim Anderson said the new products don't really complement Schering-Plough's most important franchises such as cholesterol products Vytorin and Zetia, which are sold in a joint venture with Merck. Those drugs have been a key driver of Schering-Plough's recent turnaround.

And while some analysts worried about asenapine's prospects in the wake of Pfizer's decision to jettison the drug, Hassan expressed confidence.

"Our research and development people are impressed with asenapine," Hassan said.

Schering-Plough said the transaction, which is expected to close by the end of the year, should add about 10 cents per share to earnings in the first full year, after costs and adjustments. It expects to achieve $500 million in synergies from the deal over three years.