Overnight, the InVivo blog ran a very solid interview piece, with a legacy Schering-Plough, now New Merck licensing executive, David Nicholson.
The bottom line is that the No. 2 drugmaker in the world is openly admitting it won't have the financial, logistical and human resources to develop all the candidates in its pipeline -- not without partners. These deals almost never raise front-end cash for the company spinning off the patents, know-how and technology -- but offer the prospect of additional royalty income to Merck, should one or more of the candidates ever reach market. That said, however, the deals always transfer most or all of the cash burden of doing the R&D, required FDA studies, pre-marketing and scale up away from companies like Merck -- and onto the licensing party -- which, in effect, frees up that cash, for other uses, inside Merck.
And so, this is actually a quite-sensible response to the accelerating rate of resource constraints all of pharma faces: create some "pure plays" in certain niche-spaces, and let investors bet on those, separate from the blended behemoth's overall assumed rate of return. Here is a snippet -- but do go read it all:
. . . . The company has some very attractive assets, but there is "no way Merck can afford to develop everything" in its R&D program. "Our R&D model is to generate a lot of output -- more than we can deal with. So we have to make some tough choices and it poses the question: What do we do with these other assets?" And who might be potential in-licensors? Take note: Merck's not only interested in talking to biotechs and small pharma -- its Big Pharma competitors could take a look too.
Details have yet to be worked out -- Merck's looking at the best business models and deal structures for outlicensing and "brainstorming" ideas. And the company is generating a list of out-licensing assets. . . .
Interesting -- especially the idea of partnering with potential competitors (that is what this shared Pfizer, Merck and Lilly cancer database deal, announced earlier this week, is all about). The InVivo blog article goes on to address Merck's in-licensing programs, as well. A must read for anyone interested in understanding Merck's future prospects, opportunitites and potential pitfalls.
It is obvious that if Merck is going to keep spending $600 million a year on advertising, it cannot afford to fund all of its pipeline, thus the graphic at right. [I should also mention that this is, in part, why I have long referred to the Merck-Schering-Plough deal as a "bust-up" -- it has always been clear, to the more experienced observers, that New Merck would have to take this tack, with both packets of intellectual property assets, and entire business units -- like Merial, Consumer Health and eventually, the Intervet Animal Health assets, too.]