Analysts reassess Merck-Schering merger

The judgment of Merck's Schering-Plough merger hangs in the balance, analysts tell Reuters. If the company loses big in its negotiations over the rights to Remicade and its follow-up drug Simponi, then that deal suddenly looks much more costly and much less worth the time and trouble.

Of course, hindsight can be 20/20. When Merck agreed to combine with Schering in 2009, the companies structured their deal to avoid risking the multibillion-dollar rights to Remicade and Simponi, which are governed by a partnership with Johnson & Johnson. And at the time, both companies had high hopes for an experimental blood thinner that now looks less like a major blockbuster and more like a potential niche player. (Merck took a $1.5 billion charge on its vorapaxar development program in the fourth quarter, underlining its lowered expectations).

Even before the deal closed, however, J&J raised objections about the Remicade partnership. Industry observers wondered whether the "reverse merger" structure would allow Merck to avoid the change-in-control provisions of that arrangement. Predictably enough, J&J lodged a formal complaint, and the companies are now in arbitration. A decision is expected this quarter.

"If they lose badly the Remicade/Simponi arbitration, and we've already written off vorapaxar, then two of the value drivers from Schering have gone away and will make the deal look much more expensive," Miller Tabak's Les Funtleyder told Reuters. "A lot of the merger benefit would be destroyed," agreed Morningstar's Damien Conover.

Sanford Bernstein's Tim Anderson also figures that too-rosy projections about the Schering merger led to Merck's recent decision to pull its 2013 financial forecast.

- read the Reuters news