Unloading Organon operations is too costly and complex, Merck reports

Court to rule this week as to whether Merck & Co. will have to reopen acquisition talks

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WHITEHOUSE STATION, N.J.—When Merck & Co. Inc. acquired Schering-Plough in late 2009, it also got Oss, The Netherlands-based bioscience research unit Organon Pharmaceuticals, which was sold to Schering-Plough in 2007 by AkzoNobel. Since around July 2010, Merck has been talking about slashing more than 2,000 jobs at the company but worker response was quite vocal against that, and it seemed they might be spared with an acquisition of the affected operations by Dutch bioscience company Pantarhei Bioscience.

Now, however, Merck—which operates under the name MSD in The Netherlands—is turning down the offer, saying that the transaction would be too complex and that selling the unit in Oss would cost the company far more money than simply closing down the research and development department and one production line, as it had been planning.

The works council and supervisory board at the Organon plant took their plea to the courts, however, to get takeover talks reopened, and the court will announce its decision this week, on March 11.

If the court doesn't intervene, Merck will eliminate some 2,200 jobs and cut the Organon workforce roughly in half, and then transfer its women's health research—the company being known largely for its contraceptives and hormonal therapies—to the United States.

On the verge of the planned closure of the operations in mid-February, Pantarhei, which is run by Herjan Coelingh Bennink—formerly the head of Organon's reproductive medicine research and development—had said it would fund the purchase with the help of private equity backing, though details on the backers and the amount it is willing to pay haven't been publicly reported.

According to Bennink, his own company's R&D programs in female health and endocrine cancers would fit neatly with the Organon portfolio. Pantarhei had said it was interested in acquiring all the women's health operations at the site in Oss, including R&D, toxicology, production and most of the currently marketed products in that health category, which would account for a large proportion of the operations Merck had planned to close, given Organon's strong focus on hormonal therapies.

All of this had been hoped to quell heated feelings that, following Merck's original shutdown plans for the operations, had led to months of demonstrations and threatened industrial action and finally spurred Merck to postpone the closure so that it could explore other possibilities, including a facility sale.

In Merck's defense, the transaction may indeed be too complex to be workable, as it seems that Pantarhei may not be in a position to cleanly acquire the operations and admitted that it submitted its proposal a bit late.
According to a news release from Pantarhei on March 4, "The essence of the Pantarhei concept is the division between R&D and manufacturing on the one hand and marketing and sales on the other. Pantarhei is envisaged to act as holding company holding in full all shares of NewCo 1 (Organon Women's Health) and holding in joint venture with Merck/MSD the shares of NewCo 2 (the M&S company). Merck/MSD's shareholding in NewCo 2 would allow it to fully consolidate this company into its financial accounts. Pantarhei would transfer its entire development pipeline to NewCo 1. All products developed and manufactured in NewCo 1 are to be marketed by NewCo 2. NewCo 1 will assume the responsibility for all WH activities including all WH related jobs in Oss and Schaijk."

Pantarhei further notes: "According to this concept Merck/MSD will market the WH products via the M&S company and will remain owner of the accompanying patents and IP (intellectual property) of existing products. The brand names will be owned by Merck/MSD for use in emerging markets."

Pantarhei notes that Merck declined interest in the proposed plan Feb. 22, telling the interested company that the business development investigation period for the Oss operations was over.
Pantarhei Bioscience noted that it "regrets that it was late in submitting its concept" and "Therefore it plans to approach Merck/MSD again shortly with the objective to ask Merck/MSD to revisit the merits and advantages of the Pantarhei concept." saying that the private equity firms supporting it have recently confirmed their interest in the idea.
"Pantarhei believes that its plan has attractive elements for all parties involved, including Merck/MSD, the people in Oss and Schaijk, the innovation climate in The Netherlands and Pantarhei Bioscience with six WH and Endocrine Cancer projects in late-stage clinical development," the news release concludes.

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