Recently, Schering-Plough Corporation (SGP) and Opko Health Inc. (OPK) entered into a deal which would enable Opko to acquire the assets of Schering’s neurokinin-1 (NK-1) receptor antagonist program. The companies did not disclose the terms of the agreement. NK-1 receptors are mostly found in the brain.

However, they are also found in other tissues of the body. Their activation causes a release of neurotransmitters and other signaling molecules that play a key role in controlling nausea and vomiting amongst other functions.

The U.S. market for nausea and vomiting drugs is estimated to be in excess of $2 billion. Rolapitant, Schering’s lead neurokinin, recently completed mid-stage studies for the prevention of nausea and vomiting due to cancer chemotherapy, surgery and other indications. The company has initiated early-stage studies for another compound in the same class.

As a result of Schering’s $41.1 billion merger agreement with Merck & Co., Inc. (MRK), which is supposed to close by year-end, Schering decided to divest its assets in theNK-1 program. Consequently, Schering’s deal with Opko is subject to completion of the $41.1 billion deal.

Meanwhile, the proposed merger with Merck took another step towards completion when it was cleared by Australia ‘s competition watchdog. The Australian Competition and Consumer Commission was initially apprehensive about competition in the animal health sector due to the two companies’ overlapping businesses in the Australian animal health market.

This concern was put to rest following Sanofi-Aventis’ (SNY) acquisition of Merck’s interest in Merial, a leading animal health company formed through a 50/50 joint venture between Merck and Sanofi-Aventis and now a wholly-owned subsidiary of Sanofi.

Currently, we are Neutral on Schering-Plough.

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