The basics: Merck sales were down 3 percent to $5.9 billion; net income was down 12 percent to $1.6 billion. Schering's sales were down 6 percent to $4.6 billion; net income was $671 million up 45 percent on lowered chemical costs.
The two charts (click to enlarge) show that as the merger approaches, both companies are doing the same thing: reaching a plateau in the efficiency of their sales and marketing efforts. The first graph shows the amount of revenue each company earns per dollar spent on sales and marketing. The second shows the quarter-to-quarter change in that number.
Merck consistently gets above $3 in revenue for every dollar invested in pharmaceutical sales reps and ads ($3.41 this quarter). But Schering got just $2.86 for its dollar.
We may never know if Schering can become a grown-up drug company and break the $3 barrier. The graph shows that the company wrung a sharp increase in sales productivity out of its staff in the winter of 2007/2008 but once the easy gains were gone it eked out only marginal improvements.
In the graph charting percentage growth, both companies are coalescing around zero percent -- which suggests that both have run out of steam in their efforts to find new ways to become more efficient.
So perhaps the real story about this merger is that it came because both companies saw an approaching era of declining sales, realized that they had already exhausted their toolbox of ways to deal with it, and decided to hope that joining with the other guy would somehow solve the problem.
In this marriage, though, it is Merck in the driving seat -- Schering's operation is less productive and therefore looks like a fatter place to cut.
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