Joint-Venture Acid Reflux
It's about time.
Both companies have made moves in the past few years that pushed this partnership toward an inevitable breakup. Johnson & Johnson bought Pfizer's (NYS: PFE) consumer-health business a few years ago. And Merck's purchase of Schering-Plough came with its own consumer-health division.
Neither company really needed the other like they did two decades ago. The only questions were: Which one was going to take it over? Turns out to be Johnson & Johnson. And for how much? Try $175 million. I wouldn't have guessed that Pepcid, Mylanta, and Mylicon were worth that much, but maybe the current stock market has driven up sales of the stomach medications.
It's also possible the companies' prolonged fight over Remicade had something to do with the breakup. I'm not sure how much Merck and Johnson & Johnson really like each other anymore.
Don't expect Merck to get an ulcer over the loss; in fact, the company sounds downright giddy to be free from its joint venture. Not being tied down by the joint venture allows Merck to in-license OTC drugs into its independent consumer-health division without worrying about stepping on any toes and perhaps breaking contracts in the process.
Merck's independent consumer-health division can also concentrate on its pipeline of prescription drugs that it's interested in converting to OTC status, which has become a substantial moneymaker for pharmaceutical companies recently. It was the driving force behind Sanofi's (NYS: SNY) acquisition of Chattem. And Merck has already seen it work when it converted Claritin to OTC status.
Assuming the price is right, the move looks good for Johnson & Johnson too. The added diversity from completely owning a few extra products could help settle stomachs for the health-care giant.
At the time this article was published Fool contributorBrian Orelliholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Johnson & Johnson.Motley Fool newsletter serviceshave recommended buying shares of Johnson & Johnson and Pfizer and creating a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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