Merck executives say not tempted by merger mania

Tue May 6, 2014 5:58pm EDT

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(Reuters) - Merck & Co (MRK.N) Chief Executive Kenneth Frazier said he does not expect a wave of giant mergers in the drug industry despite a spate of recent activity, adding that Merck will seek out promising medicines rather than lower taxes in any future deals.

"I don't see an arms race" in the industry "although different companies are sizing up their own (drug) portfolios and growth prospects and some feel they will be enhanced through combinations," Frazier said in a telephone interview after a company meeting with investors in Boston.

Earlier on Tuesday Merck announced the sale of its own array of consumer care products to Germany's Bayer AG (BAYGn.DE) for $14.2 billion.

Sale of the products, including brands such as Coppertone sunscreen, MiraLAX laxative and Claritin allergy pills, will allow Merck to focus on its more-lucrative prescription drugs business.

Frazier is no stranger to mega-mergers, having been head of Merck's pharmaceuticals operations when the company paid $41 billion in 2009 to buy U.S. rival Schering-Plough Corp. He became CEO of Merck in 2011.

The industry's merger pace had fallen off until recent weeks, when a series of large deals and takeover attempts emerged, highlighted by Pfizer Inc's (PFE.N) now-$106 billion unsolicited bid for British drugmaker AstraZeneca Plc (AZN.L).

Pfizer aims to buy AstraZeneca and domicile the combined company in the United Kingdom to take advantage of lower corporate tax rates, a growing trend called tax inversions.

Frazier said his company was not interested in such financial engineering. "Tax inversions clearly have value, but what motivates us is to bring medically important products to patients," he said.

Adam Schechter, Merck's head of global human health who oversaw the integration of Schering-Plough, does not expect Merck to enter into another major acquisition in the foreseeable future, although that may be wishful thinking on his part.

"It takes a lot of effort and energy to try to pull two big companies together. Having done it once, it's not something you look forward to doing ever again," he said.

"We realize that we have to pay attention to things that are going on around us and take notice. We would be interested in looking at bolt-ons," he said, referring to smaller acquisitions.

Asked about reports that Merck was considering selling its portfolio of older branded drugs no longer under patent protection, Schechter said those so-called diversified products were vital to Merck's growth in emerging markets, where there tends to be a preference for known brands over generics.

"It's also a part of manufacturing and how we have our facilities organized, so it's not easy to think of a way just to pull that out," he said.

Merck believes developing markets, with their burgeoning middle classes, will continue to be an important growth driver for the number two U.S. drugmaker, he said.

(Reporting by Ransdell Pierson; Editing by Ken Wills)

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