Some have been critical of this approach—saying SP was taken over by Fred Hassan, Inc. Hassan, however, makes no apologies:
"When it's important, and you're in a hurry, you go with someone you can rely on."
Which is better: a pure-play pharmaceutical company or a diversified company? After a career at the likes of Sandoz, Wyeth,
and Pharmacia, Hassan's point of view is hardly surprising. Shering-Plough has maintained its OTC business, with brands including
Dr. Scholl's and—since its patent expired—Claritin. With the acquisition of Intervet, Organon's animal-health business, SP
will become a leading animal-healthcare company.
The point, says Hassan, is to get maximum value from the molecule. Claritin OTC, for example, had sales of nearly $400 million
in 2006. And Schering-Plough did the switch in-house—unlike, say, Roche, which had to partner with GlaxoSmithKline on Alli
(orlistat), the OTC version of weight-loss drug Xenical. Research insight can be shared as well. For example, in developing
Nuflor (florfenicol), an antibiotic for swine, Schering-Plough used the results of human research it had conducted. The importance
of this sort of crossover cannot be overstated, especially when you consider diseases such avian flu, for which Intervet already
supplies a vaccine for birds.
These are strong places for the company to be, and Hassan believes that market trends are on Shering-Plough's side. With increased
regulatory scrutiny, more rigorous safety studies and postmarket research needed, means that, for the right drugs, there will
be more OTC candidates. What's more, payers would like to see more drugs go OTC to lower their health tab.
9 Know Your Challenges
With profits that have moved from a billion in the red to a billion in the black, things are looking up at Schering-Plough.
The Organon acquisition has pushed off the threat of a takeover, possibly by Merck with which SP partners on Zetia, Vytorin,
and a new Singulair/Claritin combo pill awaiting FDA review. But Hassan, at age 62 and with a contract that runs through 2010,
doesn't show any signs of slowing down.
The first order of business is to roll out the regulatory filings and launches for Phase III drugs. Then there's the integration
to handle. There's an art to merger-induced organizational change—and as Cox puts it, "there's no person with more experience
in the pharma industry than Fred." The integration is smaller than, say, combining Pharmacia and Pfizer. But in some ways,
it may be more complicated. Since Organon's Intervet is larger than SP's animal-health business, there will need to be an
element of backward integration, where SP's unit will be the one to change its systems.
Certainly, Hassan is making progress on his five-point plan. But the question remains: Is Organon enough?
The answer depends on what the company wants to be when it grows up. Hassan says he doesn't care if SP is a top-10 company,
as long as it has top brands in its target markets. To get there will likely require more deals in oncology and CNS, in which
the company has smart investments but would benefit from a franchise approach.
Others say that additional investments are key to further diversify the company's reliance on its cholesterol franchise, which
contributes 78 percent of its pretax profits, according to Bear Sterns. Even after the absorption of Organon, by 2010, that
number will decrease only to 71 percent. Cox is careful to remind that the cholesterol market is an area of such large opportunity,
and SP sees it there for the taking, particularly with the development of its Phase III thrombin receptor antagonist moving