Update: Big Pharma mega-merger dramarama

UPDATE: Genentech has accepted an increased offer from Roche of US$95 a share. Roche will keep the Genentech name for marketing drugs, including the blockbusters Herceptin and Avastin, in the US.

Merck and Schering-Plough have agreed to merge in yet another sign of contraction in the world of Big Pharma.

The boards of the two companies have unanimously agreed to a reverse merger, with the combined company renamed Merck and headed by current CEO Richard Clark. The deal, in which Merck will buy Schering-Plough for $US41 billion, is subject to shareholder approval.

Combined revenues of the company last year totaled US$47 billion, and the merged company will have a healthy cash and investment balance of $8 billion.

Merck said savings would be achieved by integrating a current joint venture in cholesterol drugs and that the combined companies’ expanded pipeline – there are 18 products in Phase III – should ensure sustainable growth.

The merged company will put it in a good position to confront Pfizer, which in January made a bid for Wyeth. The combined revenue of these two companies last year was US$70 billion, although the deal has been criticised by analysts.

Fintan Walton, CEO of UK company PharmaVentures, said the deal was potentially a bad one for both companies.

Over 28 per cent of Pfizer’s income comes from Lipitor, which is due to come off exclusive patent in 2011. “By 2012, the merged company will have lost $25 billion, with products coming off patent with the current pipeline only replenishing $2.5 billion in that time,” he said.

“It will be a major distraction to the merged entity and will mean that the merged company will potentially lose the opportunity to buy up biotechnology companies and their pipelines – leaving their competitors to do so. So, post-merger, the rich pickings would have gone elsewhere.”

Roche is still scoping for rich pickings, and last week increased its offer for US biotech Genentech by 7.5 per cent, in a deal now worth more than US$45 billion.

Roche had offered $86 a share last year, a deal rejected by Genentech directors who said it undervalued the company. The directors were asking $122 a share.

Genentech’s directors, including founder Herb Boyer, said they will take a formal position promptly and inform shareholders of their recommendation.

Roche already owns 56 per cent of the company.

Meanwhile, Bloomberg is reporting speculation that Sanofi-Aventis may make a play for Bristol-Myers Squibb, or Bristol-Myers making a play for AstraZeneca.