- As a standalone company, Merck & Co. faces a tough future of declining sales. Datamonitor forecasts that the proposed merger with Schering-Plough will succeed in returning Merck to a positive sales growth outlook.
- If management delivers on its promise of an additional $3.5bn of annual cost savings beyond 2011, Datamonitor calculates that the combined company will see operating profit growth rate accelerate to a strong 6.9% compound annual growth rate (CAGR) 2008–13.
- Schering-Plough’s immunology and inflammation franchise is expected to make an important contribution to the new company. However, for this to materialize the issues surrounding Schering-Plough’s partnership with Johnson & Johnson must be successfully resolved.
- The deal will allow Merck to consolidate 100% of the cholesterol joint venture sales. In addition, Schering-Plough’s respiratory franchise will integrate with Merck’s business in this category, and will add pipeline as well as marketed products. Other synergies will also be realized in women’s health and vaccines portfolios.
As a standalone company, Merck & Co. faces a tough future of declining sales
Datamonitor forecasts that Merck’s prescription pharmaceutical portfolio (including 50% of Zetia/Vytorin sales) will see sales decline at a CAGR of -0.3% from 2008-13. Generic competition against patent expired major products is the key factor behind this forecast sales contraction. Four brands—Singulair, Cozaar/Hyzaar, Fosamax and Zocor—are all expected to suffer particularly intense generic competition out to 2013.
Figure 1 highlights the scale of the expiry threat facing Merck & Co: between 2008 and 2013 Datamonitor predicts that Merck’s new launch products (including Isentress and Janumet) will boost annual sales by $3.5bn and core marketed products will generate a further $2.2bn annual increase. However, a wall of expiring products will wipe $6.1bn from annual sales leaving Merck’s 2013 annual sales standing $435m below 2008 levels.
Schering-Plough – the right merger partner to return Merck to positive sales growth
In terms of resuscitating its sales growth prospects, Merck has selected an attractive merger target in Schering-Plough. As a standalone company, Datamonitor forecasts Schering-Plough to achieve a 2008–13 sales CAGR of 4.5%—the fastest growth rate to 2013 for any US big pharma player. Figure 2 depicts the sales growth profile for Merck, Merck + Schering-Plough’s Rx portfolio and Merck + all of Schering-Plough (Rx, animal and consumer health etc.) respectively. The addition of Schering-Plough is expected to lift Merck’s 2008–13 CAGR from -0.3% to +1.7%.
Management teams also see a major opportunity to achieve further operating cost cuts and accelerate profit growth
Like the majority of their big pharma peers, pre-merger Merck and Schering-Plough already had cost-minimizing plans in place, focused primarily on reducing sales-force head count. Taken together, these plans are expected to deliver combined cost savings of nearly $2.5bn. However, in the advent of the merger, management has proclaimed that they will achieve an additional annual cost saving of $3.5bn beyond 2011 through reductions in spending on marketing and administration, manufacturing and R&D.
Figure 3 presents a build up of Merck and Schering-Plough’s total sales offset by their total operating costs. Based on the impact of the $2.5bn pre-merger cost-reduction plans, Datamonitor forecasts that the merged entity would have an operating profit CAGR 2008–13 of 2.2%. Factoring in the additional $3.5bn merger-related cost savings accelerates this operating profit growth rate to 6.9%.
“To really appreciate the scale of the touted $3.5bn cost saving you have to remember that it will flow directly into the operating profit line – and with a typical pharma operating margin of 25%, these savings would be equivalent to creating 14 new blockbusters at the top line,” says Datamonitor head of company analysis Dr. Chris Phelps.
Molecule type: Merck brings the vaccines and Schering-Plough brings the mAbs and therapeutic proteins
Purely from a sales and operating profit perspective the merger with Schering-Plough appears highly rational. However, beyond the numbers, the combination also offers an opportunity for Merck & Co. to diversify its portfolio across key strategic dimensions, most notably molecule type and therapy area.
Figure 4 presents the molecule type sales focus of Merck, Schering-Plough and the merged entity. Merck is primarily a small molecule company, generating over 80% of 2008 sales from this traditional molecule type. The rest of Merck’s pharmaceutical sales are generated from its vaccine operations. Merging with Schering-Plough will bring a portfolio that includes both monoclonal antibodies (mAbs) (Remicade and its follow-on Simponi – if the company retains rights) and therapeutic proteins (Puregon, Peg Intron etc. – from Schering-Plough’s own acquisition of Organon).
Nevertheless, the degree of molecule type diversification offered by this merger should not be overstated, according to Datamonitor senior analyst John Shortmoor. “The new company will remain entrenched in the small molecule market, accounting for 79.7% of combined 2008 sales, down just -1.9 percentage points from Merck’s pre-merger small molecule focus.”
Therapy area analysis
Merck’s therapy area focus: cardiovascular, respiratory and infectious diseases face generic threat
As it is evident from Figure 5, in terms of generated revenues for 2008, Merck’s main three areas of focus are cardiovascular, respiratory and infectious diseases. Coupling that with the knowledge that out of the $12bn portfolio that will be exposed to generic competition by 2015, 29% comes from cardiovascular, 36% from respiratory and seven percent from infectious diseases, the need for a drastic deal that will reshape Merck’s future becomes apparent.
In Figure 6, Datamonitor has analyzed the value of Schering-Plough’s therapy area portfolios and the expected change that these will bring to Merck’s therapeutic focus. A positive change in therapeutic focus means that either an existing portfolio is consolidated or a new one is created. A negative change indicates that despite the addition of new revenues the newly formed portfolio will be of less importance to the new company.
Synergy opportunities: consolidation in CV, integration in respiratory and hepatitis
Schering-Plough possesses three franchise strengths that complement Merck’s strengths, and the resultant infrastructure overlaps will enhance synergy opportunities. First and most obviously, the deal will allow Merck to consolidate 100% of the cholesterol joint venture sales. Second, Schering-Plough’s respiratory franchise will integrate with Merck’s business in this category, which will be especially timely given Singulair’s 2012 patent expiration, and will add pipeline (Asmanex/Foradil and the QAB/Asmanex collaboration with Novartis) as well as marketed products (Nasonex, Asmanex). Third, Schering Plough’s protease inhibitors for hepatitis C (boceprevir in Phase III and SCH-900518 in Phase II) are in an area where Merck has also been active and will allow the new company to advance the most promising single and combination agents out of the two pipelines. The hepatitis C compounds also complement Merck’s strengths in other infectious diseases (antibiotics, HIV).
New portfolio acquisition/consolidation: immunology, respiratory and women’s health offer new opportunities
In addition to the synergy opportunities that will arise from the deal, Merck will also have the opportunity to either acquire new portfolios in areas where it has not traditionally been active or bolster failing or vulnerable franchises. The most prominent new portfolio acquired will be immunology & inflammation, where Remicade is expected to add annual sales in excess of $2bn, Datamonitor cardiovascular lead analyst Dr. Nick Karachalias says. “Furthermore, Merck stands to benefit significantly by acquiring the women’s health and urology portfolio that Schering-Plough built following the purchase of Organon. “In addition to venturing into previously uncharted territories, Merck will be able to rejuvenate its respiratory portfolio, which is expected to take a hit following Singulair’s 2012 patent expiration,” he says.
Immunology and inflammation: a valuable portfolio, but J&J’s involvement will be critical
Merck stands to benefit significantly in the immunology & inflammation arena, as the acquisition of Schering-Plough’s products will bolster a failing portfolio and signify a sharp change in therapy area focus for Merck.
Schering-Plough has exclusive worldwide marketing rights to Remicade (infliximab), a monoclonal antibody targeting tumor necrosis factor (TNF) in all markets outside the US, Japan and portions of the Far East. Centocor (a subsidiary of Johnson & Johnson) brokered this deal in 1998 and as of a renegotiation in December 2007, the agreement now extends beyond 2014. Schering-Plough reported 2008 Remicade sales of $2,118m, so this is a substantial deal on its own. However, the original 1998 deal also includes Remicade 'follow-on' molecule Simponi (golimumab), which targets the same cytokine with improved administration and structural characteristics. In 2005, Schering-Plough exercised its rights to develop and market Simponi, which is expected to launch during 2009 and to reach blockbuster status, creating a vital future source of revenue for Merck.
The secret to the success of the anti-TNF biologic products lies not only in the high prices they command, but also in their ability to treat multiple indications. Although Remicade is often referred to as an arthritis drug, it gains a large proportion of its sales from additional indications such as Crohn's disease and psoriasis. Datamonitor expects its successor Simponi to receive approval in the US and EU not only for rheumatoid arthritis but also ankylosing spondylitis and psoriatic arthritis, all of which are treated by rheumatologists, Dr. Karachalias says. “Schering-Plough's experience and links with EU rheumatologists will aid Simponi, but Merck's reputation among rheumatologists is not exemplary.
“The 2004 Vioxx withdrawal has created a distrust of Merck's marketing tactics among this physician group, although Merck does continue to sell Arcoxia (etoricoxib) in a number of markets outside the US,” he says.
Datamonitor does not believe that the continuing market success of Remicade and Simponi is guaranteed. As the only intravenous anti-TNF on the market, Remicade will always have a niche of patients from all indications who do not want to, or cannot, self inject. But on the whole most patients prefer the ease and freedom of a self-administering subcutaneous injection, which underpins the success of Remicade's key competitors Enbrel (etanercept) and Humira (adalimumab). Simponi will be the fifth anti-TNF brand on the market, joining a crowded and heavily competitive area with only a variable dosing method (intravenous or subcutaneous injection) to differentiate itself. The dual administration strategy is something that physicians interviewed by Datamonitor have expressed confusion about.
Datamonitor forecasts that Remicade sales will continue to level off and that the launch of an intravenous formulation of Simponi will result in a switching of patients to the newer molecule, to the detriment of Remicade. “What looks like two major blockbusters on paper may result in one blockbuster at the expense of the other, when market dynamics are taken into account,” Dr. Karachalias says.
Johnson & Johnson’s involvement
The 'reverse takeover' strategy used in this deal, which essentially means that the smaller Schering-Plough will technically acquire Merck, is thought to be a ploy to ensure a historically lucrative marketing deal is retained by Merck after this merger. However, the outcome is anything but certain.
Four change-of-control provisions are built into the licensing deal with Johnson & Johnson (J&J) and could potentially prevent Merck from gaining the overseas rights to both anti-TNF brands. The 'reverse takeover' strategy aims to prevent these clauses from being triggered. However, Datamonitor believes that at least one of these clauses will be breached giving J&J the right to terminate the agreement without compensation (Figure 7).
Merck’s chief financial officer Peter Kellogg said the matter would be decided by binding arbitration should J&J raise an objection and that Merck would then 'vigorously defend' its position. If this turns out to be the case, the arbitrator will likely try to devise a solution that is equitable for all three parties and Datamonitor assume that J&J will obtain some compensation from the merged company.
The prospect of a battle is a dampener on the deal, but the question needs to be asked; why would J&J object? Maintaining Schering-Plough's expertise and experience in marketing an anti-TNF in the EU must be a consideration for J&J. If it objects to the deal and retains Remicade and Simponi, it will have to find new marketing partners in the EU, something that will surely damage the franchise.
In addition, there is always the possibility that J&J could move to outbid Merck. This would be out of character for J&J, but the possibility cannot be discounted outright. In the past J&J has avoided entering public bidding wars with its pharma or biotech peers. However, the company faces numerous macro and company-specific challenges, so it may break from its traditional ways in pursuing an attractive target in the pharma space.
Women’s health and urology: Schering-Plough will significantly contribute in both marketed and pipeline products
Merck has enjoyed a leading position in the osteoporosis market thanks to its blockbuster oral bisphosphonate Fosamax, which in 2007 had sales of $3,049m. In anticipation of Fosamax’s patent expiry in 2008, Merck put in place an effective lifecycle management strategy, which included the launch of Fosamax Plus D. However, as expected the patent expiry has compromised Merck’s position as a market leader, cutting Fosamax’s sales to $1,553m in 2008.
The two pipeline osteoporosis drugs (MK-0822 and MK-5442) that Merck is developing are unlikely to make up for the revenues lost from the Fosamax franchise. Odanacatib (MK-0822) harbors greater potential as it is the furthest developed cathepsin K inhibitor and is expected to reach the FDA by 2012, ahead of GlaxoSmithKline’s and Ono’s competitor products. In addition, early clinical results have shown that it is safe and well tolerated. If these are confirmed in Phase III trials, Merck can exploit its leading market position and continue its successful osteoporosis franchise. In contrast, Datamonitor expects MK-5442 to launch in a competitive section of the market, currently dominated by Eli Lilly’s Forteo and target a niche population of severe osteoporosis sufferers.
The merger with Schering-Plough will not broaden Merck’s osteoporosis portfolio but it will considerably augment the highly related portfolio of women’s health. In particular, following the acquisition of Organon, Schering Plough has developed a strong market position in the infertility and contraception markets with not only numerous marketed products (Puregon/Follistim, Pregnyl, Ganirelix, NuvaRing) but also a solid pipeline with four products in Phase III development. In addition, Schering-Plough’s considerable dedicated sales force is expected to benefit the promotion of Merck’s HPV vaccine Gardasil, Dr. Karachalias says.
“As expected the addition of the Schering-Plough products will not only consolidate the women’s health and urology portfolio but it will also mark a radical change in Merck’s focus in this therapy area.”
Respiratory: marketed and pipeline portfolios will be bolstered
Schering-Plough has a firm position in the respiratory market, historically focusing on allergic rhinitis with Nasonex and Clarinex as its major brands. Merck’s only, but highly successful, respiratory product is Singulair, an oral non-steroidal anti-inflammatory for the treatment of allergic rhinitis and asthma, will complement Schering-Plough’s franchise nicely. The companies have already collaborated in the allergy market by developing a fixed-dose combination of Singulair and Claritin, an oral antihistamine and Clarinex’ predecessor. However, the compound was rejected by the FDA in April 2008, probably linked to a lack of additional clinical benefit over currently available products.
As the allergic rhinitis market is becoming increasingly genericized and growth opportunities are limited, both companies have broadened their focus to include asthma and chronic obstructive pulmonary disease (COPD). Schering-Plough has already launched Asmanex, a once-daily inhaled corticosteroid (ICS) for the treatment of asthma that contains the same molecule as Nasonex. The company is also collaborating with Novartis to develop Asmanex as part of two fixed-dose ICS/long-acting beta2-agonist (LABA) products. Datamonitor expects these fixed-dose inhalers to achieve combined sales of $3.2bn in 2017. The latter products are unlikely to compete with the Singulair/ICS fixed-dose combination product that Merck is thought to be developing, as they would target slightly different subsets of the patient population.
Both Schering-Plough and Merck are also developing novel anti-inflammatories for the treatment of COPD and severe asthma, targeting CXCR2 and 5-LO, respectively. Given the big unmet need and long history of development failures in these areas as well as possibly synergistic actions or different target populations, Datamonitor does not expect the merger to impact either compound’s progress.
CNS: focus on the early stage pipeline
In terms of the CNS disease area, the merger will not have a significant impact on Merck’s outlook over the near to mid term. Neither company has a significant presence in the CNS market or a blockbuster CNS brand.
The merger will not offer Merck any synergies in its current core CNS indication of acute migraine therapy. Merck markets Maxalt (rizatriptan) in this indication, which it already planned to supplement with novel product telcagepant (currently in Phase III).
While Schering-Plough does posses several CNS drugs in its late-stage pipeline (Saphris asenapine (schizophrenia), esmirtazipine (insomnia), Sugammadex (anesthetic)), these will be entering mature and highly competitive markets and are not forecast to generate blockbuster revenues. While the combined company will remain underweight in terms of CNS therapy area revenues compared to its peers over the near to mid term, both companies have invested in CNS-focused R&D over the last few years, with a plethora of promising early-stage products providing the potential for significant gains in this therapy area over the long term.
Oncology: Temodar the only noteworthy addition
Oncology has historically been a minor source of revenue for Merck. The company markets a single anticancer drug, Zolinza (vorinostat), which is approved and recently launched for the niche indication of cutaneous T-cell lymphoma. It achieved estimated global sales of just $17m in 2008. Merck also markets Emend (aprepitant), indicated for chemotherapy-induced nausea and vomiting, although this has only achieved modest market penetration in a highly genericized market, with sales of $264m in 2008.
Merck’s acquisition of Schering-Plough will immediately increase the company’s footprint in the oncology market, providing three additional marketed cancer brands. The most lucrative of these is Temodar (temozolomide), which is firmly established as the standard of care for primary brain cancer and achieved global sales of $1bn in 2008. Caelyx (liposomal doxorubicin)—marketed in the EU for breast cancer, ovarian cancer, multiple myeloma and Kaposi’s sarcoma—and the melanoma drug Intron-A (interferon alfa-2b) collectively added further sales of over $500m in 2008.
The acquisition of Schering-Plough bolsters Merck’s narrow portfolio of oncology pipeline agents, although this is unlikely to drive significant future sales growth for the company. Deforolimus, which is in Phase III development for sarcoma, is Merck’s only late-phase oncology pipeline drug. The acquisition will give Merck one extra late-phase pipeline oncology agent, PEG-Intron (pegylated interferon-alfa-2b), which is in pre-registration in the US for melanoma. However, Datamonitor does not forecast this drug to achieve notable market penetration given the toxicity shown in clinical trials, low use of interferon-alfa-2b in melanoma and likely competition from biosimilar versions of interferon alfa-2b. The acquisition will also add a further three Phase II compounds—robatumumab, a CDK inhibitor and a CHK-1 inhibitor—to the two Phase II agents already being developed by Merck, MK-0457 and MK-0646.
Cardiovascular disease: consolidation of the JV and shift towards specialist care
The consolidation of the cholesterol joint venture between Merck and Schering-Plough has been touted as one of the key drivers for the deal. Undoubtedly working closely together on the development and marketing of Zetia (ezetimibe) and Vytorin (ezetimibe and simvastatin) the two companies would have had a chance to assess their compatibility in terms of practices and corporate cultures. Management claimed that 100% ownership of the cholesterol franchise will make for a streamlined decision-making ability and facilitate the creation of future combinations for Zetia.
However, despite the fact that the franchise’s worth is considerable (generating sales of $4.6bn in 2008) it has recently suffered major setbacks. Its growth in the US has been reversed by the well-known controversies surrounding the ENHANCE and SEAS studies. With the medical community focusing on intensive statin therapy for the treatment of dyslipidemia, the possibility that prescriptions for Zetia and Vytorin in the US will fall to the equivalent levels noted in Europe looms large.
In addition, Merck’s cholesterol pipeline has been substantially weakened by the non-approval in the US of Tredaptive (niacin and laropiprant, formerly Cordaptive; approved in Europe but not yet launched due to manufacturing problems). This product could be approved in the US in approximately 2012, after completion of the ongoing outcomes study (HPS2-THRIVE Study) that is being requested by the FDA, Dr. Karachalias says. “The impact of this delay or non-approval is particularly meaningful given Merck’s dependence on the molecule in its planned combination products, MK-0524B [Tredaptive and generic Zocor] and MK-0524C [Tredaptive and generic Lipitor].”
Within the cardiovascular arena, Merck’s hypertension portfolio (Cozaar and Hyzaar) also holds great importance with sales approaching $3.6bn in 2008. However, patent expiries will all but eliminate this revenue stream from 2010 onwards. These imminent patent expiries, in combination with the challenges faced by the cholesterol franchise have left Merck in a highly exposed position with regards to its cardiovascular products.
“The merger with Schering-Plough is unlikely to alleviate the problems that Merck is facing since the only marketed cardiovascular product [apart from their share of the cholesterol joint venture] that they are bringing to the deal is Integrilin (eptifibatide). While the latter is leading its class in terms of sales, it is nowhere near as successful as Merck’s products,” Dr. Karachalias says.
The situation is reversed in the pipeline with Schering-Plough having the most promising late-stage agents in the form of its thrombin receptor antagonist SCH-530348. The agent, that has been fast-tracked by the FDA is nearing completion of Phase III trials and is expected to be submitted to the FDA in 2010 or 2011. In Phase II trials, SCH 530348 showed a trend toward fewer ischemic events without increasing bleeding when added to standard antiplatelet therapy with aspirin and clopidogrel in patients undergoing PCI (percutaneous coronary intervention). If Phase III trials confirm that the drug does actually reduce ischemic events without increasing bleeding, it will be a surefire winner. On the other hand, Merck’s late-stage pipeline relies heavily on further combinations of Tredaptive and anacetrapib, a cholesterol ester transfer protein (CETP) inhibitor in development in a class tainted by the safety concerns surrounding Pfizer’s late-stage failure, torcetrapib.
Even if Schering-Plough’s late-stage pipeline fulfils its commercial potential it is unlikely that it will be able to cover the gap left by the soon to be defunct hypertension franchise and the diminishing sales of Zetia and Vytorin. Hence Merck’s original strong position in the cardiovascular arena will be diluted after the deal. In addition, the resulting company is expected to change its focus in the cardiovascular arena from primary care indications to indications mainly covered by specialists.
Diabetes: Januvia remains the sole focus
Merck has performed an impressive entry in the diabetes therapy area leapfrogging Novartis to bring the first, and still only, DPP-4 (dipeptidyl peptidase-4) inhibitor in the market. With sales of $1.4bn in 2008, two years after launch, Januvia (sitagliptin) has had the second most successful launch in the cardiovascular and metabolic diseases arena, behind only Pfizer’s mega-blockbuster Lipitor. Merck has already launched a combination with metformin (Janumet) and is developing a combination with pioglitazone (MK-0431c). The FDA changed the requirements for approval of antidiabetic medications late in 2008, raising the bar in terms of proving cardiovascular safety and at the same time ensuring Januvia enjoys an even longer period in the market without any true competitors, Dr. Karachalias says.
“Schering-Plough has virtually nothing to offer in the diabetes arena both in terms of marketed products and in terms of developmental pipeline. Inevitably, Merck’s focus in the therapy will be somewhat diluted post-merger.”
Infectious diseases: Merck focuses on vaccines, Schering-Plough on hepatitis
Merck is the second-biggest player in the vaccines market, achieving vaccine franchise sales of just under $4.1bn worldwide (including 50% of joint venture sales from SP-MSD). The company’s recent strong vaccine sales growth was mainly fuelled by the launch and rapid uptake of the human papillomavirus (HPV) vaccine Gardasil. While recent growth has stalled a bit, cross-marketing opportunities with Schering-Plough’s strong Women’s health portfolio may support a re-acceleration.
Vaccines now play a crucial role for Merck’s overall pharmaceutical revenues, with the share of vaccines in Merck’s global pharmaceutical sales increasing from 6.2% in 2004 to 21.3% in 2008. The company’s performance last year has been dented by ongoing manufacturing issues, interrupting supply of six of the company’s vaccines, as well as by the slower than expected uptake of Gardasil. Merck’s biggest strength is the company’s innovative portfolio of novel vaccines, including Gardasil, the rotavirus vaccine RotaTeq and the shingles vaccine Zostavax, all of which were launched in 2006 at premium prices. While the failure or discontinuation of several pipeline candidates has thinned Merck’s vaccine pipeline considerably, it will be strengthened by Schering-Plough’s Nobilon unit; a Dutch vaccine development subsidiary spun out of Organon in 2003. Despite this, the merger will inevitably dilute the significance of vaccines to Merck’s overall sales performance.
Antifungal and antibacterials
Merck is a significant player in the market for hospital infections with two first-in-class drugs, Primaxin, the first carbapenem (launched in 1985 for serious bacterial infections), and Cancidas, an intravenous antifungal drug, the first echinocandin (launched in 2001). Invanz, the first next-generation carbapenem, was approved in November 2001. These three drugs enjoyed combined 2008 sales of $1.6bn. Merck’s strong franchise in this sector may give a boost to the commercial success of Schering-Plough’s oral antifungal drug Noxafil, a product with disappointing sales since its first launch in 2005 (2008 sales: $149m). Interestingly, Pfizer is developing a combination product of a triazole (Noxafil’s drug class) and an echinocandin; an approach that is now open to Merck as well.
In the HIV market, Merck has one marketed antiretroviral and a strong pipeline which will make it a fierce competitor. The company launched Isentress (raltegravir), a first-in-class integrase inhibitor in 2007 and has an active early-stage pipeline. Although Schering-Plough has no marketed antiretrovirals, the company has a CCR5 inhibitor (vicroviroc) in Phase III development. Isentress is already proving a commercial success with worldwide sales of $361m in 2008, forecast to grow to $1.5bn by 2013. Vicriviroc’s outlook, however, is not nearly as bright. Belonging to the same class as Pfizer’s commercial flop Selzentri/Celsentri (maraviroc), it suffers from an efficacy limited to a subset of patients. Although if vicriviroc is successfully approved, there is an attractive opportunity for Merck/Schering-Plough to trial and market Isentress and vicriviroc use in combination, strengthening the combined entity’s presence in the HIV market.
In the hepatitis c virus (HCV) arena the situation is somewhat reversed. In this commercially very attractive area, Merck currently has no marketed HCV products, but has a HCV protease inhibitor (MK-7009) in Phase II development. Schering-Plough on the other hand is a well-established leader in the HCV market, with marketed pegylated interferon (Peg Intron) and ribavirin (Rebetol) therapies achieving combined sales of $1.2bn in 2008. The developmental protease inhibitor boceprevir in Phase III and its follow-up compound SCH900518 in Phase II are among the most eagerly anticipated new HCV drugs with large sales potential. The new combined entity will therefore probably prioritize its research efforts in favor of either MK-7009 or SCH-900518 as boceprevir’s follow-up protease inhibitor.