Schering-Plough (US)

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Schering-Plough was a leading US healthcare company with a broad portfolio of pharmaceutical and over the counter products. It enjoyed considerable success in the late 1990s with the non-drowsy antihistamine Claritin. However, between 2001 and 2003 the company suffered a series of dramatic reversals of fortune, not least the collapse in sales of Claritin following the expiry of its patent. A new management team began a complete overhaul of the business in 2003, kickstarting the company's drug pipeline and establishing a number of partnership agreements, including a deal in 2004 to take over US sales and marketing duties for Bayer's drug portfolio. In 2009, the company agreed a deal to be acquired by larger competitor Merck & Co, with whom it already operated a worldwide joint venture to market asthma and anti-cholesterol products.

German pharmacist Ernst Schering acquired a small shop in Berlin in 1851, naming it the "Gruene Apotheke" (or Green Pharmacy). The enterprise grew rapidly, and Schering established manufacturing facilities to make a range of herbal remedies. By 1900 the company had begun production of synthetic camphor, and started to apply for patents for its own products. In 1929, Schering Corporation was founded in New York as the company's first manufacturing plant in that country. However during World War II, Schering's US subsidiary was confiscated by the American government, along with the local arms of other German companies. Schering Corporation was nationalized, before being auctioned off in 1952, when it was acquired by the investment arm of Merrill Lynch. (The original German company continued to exist as an entirely separate entity, Schering AG, until 2006 when it was acquired by Bayer). Under new management, Schering USA set up its own research division, and successfully developed a number of new medicines including cold medicine Coricidin, decongestant Afrin and one of the first antihistamines. The company went public during the decade.

Having developed a successful independent life of its own, Schering USA merged in 1971 with consumer healthcare manufacturer Plough Inc, which already owned leading US suncare brand Coppertone. During the 1970s and 1980s the group acquired a number of other businesses, including Scholl in 1979. In 1993 it launched Claritin, the first non-sedating antihistamine, which went on to become a huge-selling brand throughout the rest of that decade.

However the group was hit with a virtually unprecedented series of problems between 2001 and 2003. Claritin's patent expired at the end of 2001, leading to a sharp slump in sales of that product, while there were few other significant drugs within the company's pipeline which came anywhere close to making up the shortfall. The group stemmed a little of the damage by introducing a new longer-lasting variant on prescription, under the Clarinex brandname (Aerius or Neoclaritin in other markets), while switching Claritin to the over-the-counter market, but it was not enough to prevent a substantial slump in the group's operating profits, which fell from more than $2.5bn in 2002 to just $13m in 2004. To make matters worse, the group was slapped with a steep $500m fine by the US FDA for manufacturing problems at two US plants, and it was one of several pharmaceutical manufacturers accused of cheating the US Medicaid program by over-charging for drugs. (It later agreed to settle the various suits relating to these matters with payments totalling around $435m).

Fred Hassan, formerly chairman & CEO of Pharmacia, was parachuted in to SP in 2003 with a firm brief to turn the group around. He instituted a series of measures, including the freezing of all bonuses and profit-share payouts, and a round of staff reductions. At the same time Hassan delivered a sharp kick to the new products pipeline, and has also worked to put in place a series of partnership agreements with other manufacturers. However progress was comparatively slow, and write-offs and restructuring led to a $948m loss in 2004. Overall performance finally began to recover in 2005 and 2006.

The group's biggest selling product by then was Remicade, a treatment for rheumatoid arthritis, originally developed by Centocor, a division of Johnson & Johnson. SP held international marketing rights (excluding the US and Japan) for the drug, from which it generated sales of $2.1bn in 2008. From 2004, Schering-Plough also had a strategic alliance with Bayer, effectively taking over responsibility for the German company's pharmaceutical portfolio in the US market. SP took over marketing and sales of top-sellers Avelox and Cipro, and also managed Bayer's commercial interests in Levitra, jointly marketed with GlaxoSmithKline.

The merger with Merck was the natural extension of an existing joint venture. Schering-Plough originally negotiated a long-term global partnership with Merck in 2000 to develop new products. This led to the introduction in late 2002 and early 2003 of cholesterol-lowering compound Zetia (marketed as Ezetrol in Europe), Schering-Plough and Merck also developed a product which combines Zetia with Merck's Zocor. The Zetia-Zocor compound, Vytorin, launched in the US in 2004. (It is marketed internationally as Inegy). Combined sales from these products, totalling $4.6n in 2008, are wholly consolidated into Merck's accounts. Schering-Plough's accounts reflect only a share of profits. The future of Vytorin came under significant threat in 2008, however, when new research indicated that its combination of Zetia and Zocor did not reduce arterial plaque any more effectively than Zocor on its own, now available in generic form. Subsequent additional research suggested that Vytorin also had negative health implications for patients with heart-valves. A planned diversification into the respiratory sector, with a combination of the active ingredients in Claritin and Merck's Singulair, was cancelled during 2008 as a result of regulatory issues.

At the time of its acquisition, Schering-Plough also contained a sizeable consumer health portfolio, led by the non-prescription formulation of Claritin. Other group products included Afrin decongestant sprays, nappy rash cream A+D and Coricidin HBP cough and cold remedies. The group's Coppertone brand was the best-selling suncare range in the US, while the footcare portfolio included market-leading brand Dr Scholl's in the US, and athlete's foot treatment Lotrimin. Miralax, introduced in 2007, was the OTC version of what was previously a prescription-only laxative.

Schering-Plough's last full year revenues, for 2008, jumped by 46% to 18.5bn. The main contributing factor was the part-year contribution from Dutch group Organon. Proforma revenues, including a full year from Organon, would have been $20.8bn. Net income was $1.6bn, a considerable improvement over the previous year when Schering-Plough reported a net loss of $1.2bn in 2007, because of around $4bn of charges associated with that acquisition.

For tax and legal reasons, the deal with Merck was structured as a reverse takeover of Merck by Schering-Plough with a value of around $41.1bn in cash and stock. However the new group took the Merck name and HQ and is led by that group's CEO Richard Clark. Fred Hassan had been chairman & CEO of Schering-Plough. He departed the group following the Merck merger, along with most of the company's other senior corporate and pharmaceutical group managers.

There are numerous ironies involved in the acquisition of Schering-Plough by Merck & Co, itself, like the original Schering USA, an orphaned offshoot of what was originally a Germany company. (Merck KGaA still exists). In another echo of this American-German axis, Merck eventually sold Schering-Plough's OTC healthcare division to Bayer, which had previously acquired the original Schering AG entity in Germany.

Last full revision 24th June 2016

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