© 2006 Nature Publishing Group

Vol 440|30 March 2006

603

BUSINESS

Despite boasting an impressive historicalheritage, Germany’s once powerfulpharmaceutical industry is now heav-

ily fragmented. But the company that pro-duced the world’s first blockbuster drug ismaking a bid to reclaim some lost ground.

On 23 March, Bayer made an offer to buyBerlin-based Schering, quashing a hostiletakeover bid from German rival Merck KGaA.Schering’s board immediately announced itssupport for Bayer’s €16.3-billion (US$19.6-billion) offer. Darmstadt-based Merck, whichis not linked to the New Jersey firm of the same name, withdrew its own offer of€14.6 billion for Schering the following day.

Bayer’s chairman, Werner Wenning,describes the proposed merger as “the bestway of reasserting the importance of Germanyas a pharmaceutical industry base”. But analysts are less convinced that the move willsolve the problems faced by the companies.

The flurry of activity in Germany reflectsthe pressing need for mid-sized drug firms to attain critical mass, say analysts. None of the three companies involved is large enoughto succeed in the current business climate, saysAlexander Groschke, a pharmaceuticals ana-lyst at Landesbank Rheinland-Pfalz in Mainz.

If Schering’s shareholders accept the bid, asexpected, then Bayer says it plans to axe 6,000 of the companies’ combined workforce of justunder 60,000. About a third of the losses are

likely to be in research and development, it says. Günter Stock, president of the Berlin Bran-

denburg Academy of Sciences and a formerhead of research at Schering, criticizes theplanned job cuts. “There have to be somefinancial savings accompany-ing the merger,” he says. “ButI cannot imagine that therewill be as many as 6,000 jobslost. Big cuts in the core business of Schering wouldendanger the future of Bayer.”

Germany’s drug sector was mostly bypassedby the merging frenzy of the 1990s that createdthe likes of AstraZeneca and GlaxoSmith-Kline. Today, the country has to compete withthe resultant global entities. Bayer says that themerger will “create a healthcare heavyweightof international standing”. But analysts say thatmid-sized companies such as Schering, Merckand Bayer face immense challenges in keepingup with the increasingly global pharmaceuti-cals business.

This month, for example, consultants WoodMackenzie of Edinburgh published a reportwarning such companies to act swiftly to protect themselves. As pipelines of potentialdrugs dry up, the pressure to license new prod-ucts from small biotechnology companies isincreasing, the report notes, which is pushingthe price of such deals to levels that only thelarger firms can afford. In the past five years,

Wood Mackenzie says, thetypical cost of such a deal hasincreased sevenfold.

Mid-sized companies haveonly three ways to respond,says the report: they canincrease in size, specializegeographically or concen-trate in a particular therapeu-tic area.

Schering is a world leaderin contraceptives and otherwomen’s health products,and has enjoyed considerablesuccess with Betaferon, itsdrug for multiple sclerosis.But last year alone it lost fourmajor drug candidates dur-ing the final phase of clinicaltrials. It recently shut downits cardiovascular researchand restricted its brain

Too little, too late?Merger fever has finally reached Germany’s drug firms. But can it cure the industry’s woes? Alison Abbott reports.

research programme to multiple sclerosis andParkinson’s disease. And it has said that, apartfrom hormone therapies, the main focus of itsresearch will be finding cancer therapies.

Leverkusen-based Bayer is probably bestknown as the company thatproduced aspirin, the firstblockbuster drug. It has morediverse interests than Scher-ing — only half of its activi-ties are in pharmaceuticals;one-third is agricultural

products and the rest is materials. Although itis strong in over-the-counter therapies, Bayer’shealthcare business took a major hit in 2001when its cholesterol-lowering drug Lipobay(or Baycol) was withdrawn after it was linkedto patient deaths. Nevertheless, the companyhas had some recent success with cancer treat-ments, and last December US regulatorsapproved its drug Nexavar (sorafenib) fortreating kidney cancer.

If the merger goes ahead, the new company,Bayer-Schering Pharmaceuticals, will be based in Berlin and will rank as the world’s12th-largest pharmaceutical company. ButGroschke argues that the price Bayer is payingfor Schering is on the high side, and mayreflect the company’s fear of being left behindin a consolidation rush.

“With a €9-billion turnover, it would be atthe high end of what is viewed as a mid-sizedcompany,” says Patrik Frei, chief executive ofVenture Valuation in Zurich. “It would havemore purchasing power to compete forbiotech licensing deals.” Shares in Bayer rosemodestly on news of the merger.

Bayer-Schering Pharmaceuticals wouldhave a reasonably strong focus on cancer.Across the board, it would have 50 or so drugsin the pipeline — with 19 in the last phases ofclinical testing.

The firm would also have a strong geo-graphical focus: Europe accounts for half thesales of both Bayer and Schering. This couldbe a mixed blessing, however, as Europe’s pricecontrols and diffuse healthcare systems makeit a tough market for drug companies.

Frei says that the new company would haveto invest smartly with biotech partners — perhaps even before a product enters clinicaltrials — in order to prosper. “It’s a hard timefor mid-sized pharmaceutical companies,” he says. ■Schering is braced for job losses following Bayer’s takeover bid.

“Bayer is planning tocreate a healthcare

heavyweight ofinternational standing.”

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