Merck joins the cost-cutting bandwagon

published 13 March 2009

Big pharma is "reaching for a familiar old remedy", said Ian King in The Times: mergers and acquisitions. In January, Pfizer forked out $68bn for Wyeth. Rochehas upped its bid to buy out Genentech to $46.7bn. And now Merck has bid $44bn for rival Schering-Plough. Companies are scrambling to consolidate because blockbusters are coming off patent, generic competition is on the rise, and now Obama's health reforms "could blow a hole" in drugmakers' profits by forcing drug costs down.

Mergers are designed to beef up pipelines and save a fortune in costs. The big motivation for Merck is up to $25bn in potential cost cuts, said Robert Cyran on Breakingviews which works out as more than double the premium it's paying Schering-Plough. Merck will also double the number of late-stage drugs in its research portfolio and gain better access to overseas markets.

But putting big drug groups together hasn't bolstered the pace of drug discovery, said Richard Fletcher in The Daily Telegraph. Scientists are "irascible" and they tend to "mysteriously lose their productivity" when moved out of their comfort zone into a new lab. Merck's decision to join the cost-cutting bandwagon, said Lex in the FT, is the latest sign of the "broken drug discovery model".

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