THE BLOG
03/18/2010 05:12 am ET Updated May 25, 2011

Merging Into the Fast Lane of Drug Development

Today, Merck and Schering-Plough completed our global merger. By combining the two New Jersey-based companies, we have created one of the world's largest health care firms, with more than $40 billion in annual revenues.

As with other game-changing mergers, some have warned that consolidation could choke R&D and stifle innovation. It's not lost on us that this same speculation is taking place during the current wave of consolidation in the industry.

This allegation is worthy of a well-reasoned response. While I can't speak for other mergers, I'm confident that the union of Merck and Schering-Plough can accelerate the development of cures for devastating ailments. This is why our merger makes sense for our patients, customers, and shareholders across the world.

In today's economy, knowledge and innovation are no longer limited to one geographic area, one business system, one R&D pipeline, one regulatory arena, or one model of funding. Any company expecting to survive -- let alone innovate -- must attune itself to global realities. It must actively aggregate and integrate knowledge from across the world.

Look at the story of Apple's iPhone. The real miracle isn't what happened in an Apple lab. It's what's happening, right now, on computers and mobile devices worldwide. Global innovators have developed applications that make life easier. From your phone, you can now pay your bills, find a good restaurant, and even figure out what song you're enjoying on the radio. More than 75,000 iPhone applications already have been created, including Merck's own iPhone app for the new Merck Manual Home Health Handbook.

Medicines are created in much the same way. Innovation depends on information. And information flows from thousands of scientists across the world building on one another's breakthroughs. Major contemporary life-saving innovations, including some of the most widely prescribed cardiovascular medicines, would never have appeared without scientists inside pharmaceutical companies working with other scientists worldwide. And several of our most important vaccines were developed by Merck scientists building on discoveries made by scientists at academic medical centers around the world.

The global scale of the new Merck increases the chances for this sort of collaboration. We now have people in more countries, including more emerging markets, and are putting systems in place to create and incubate knowledge networks which were unattainable just a few years ago. For example, we just invested millions of dollars in an open-access resource network for our researchers -- by accelerating information sharing, we hope to accelerate the discovery and development of cancer drugs.

In addition, a broader global reach will give Merck access to new markets -- and bring new ideas to those markets. For instance, Merck's recently announced partnership with the Wellcome Trust has created a sustainable R&D organization embodied in a not-for-profit operating model to address the vaccine needs of low-income countries. Similar proposals are already on the table.

Efficiency and focus are likewise improved by the merger. The paradox here is that the new Merck, while larger, is organized to be more nimble and efficient at making decisions. And breakthrough innovations have a better chance of occurring more quickly because of the company's focus on external partnerships and collaborations. We are humble enough to know that only a fraction of the science that drives innovation will come from inside the walls of our laboratories. Likewise, our strategy for the merger was to gain additional resources that could be applied to the best science, wherever it emerges.

Finally, the merger also creates a company with greater financial strength. We will be able to cut costs and thereby expect to save approximately $3.5 billion annually beyond 2011. That means more money for research into the next generation of innovative cures.

Investments on a global scale -- and the associated risks -- are enormous. Smaller companies may hit home runs by discovering one-off breakthrough drugs. But ongoing development -- the yeoman's work of health care innovation -- requires a different model. We plan for the inevitable R&D failures and financial losses. Just one out of every 10,000 promising compounds results in an approved drug.

In addition to driving innovation to continue filling our pipeline, we must also deliver on the late-stage compounds that have a high likelihood of approval and will therefore fund tomorrow's research. In that regard, this merger also puts new legs under Merck by nearly doubling our potential medicines and vaccines in late-stage development to more than 15 -- involving everything from osteoporosis to high-cholesterol to migraines to cancer.

Asking whether or not this merger will promote innovation is an important question. But given all the available evidence -- and the manifest hopes for continued medical progress -- we're confident that the Merck merger can be a bright new way forward.

Richard Clark is chairman, president and CEO of Merck & Co., Inc. and past Chairman of the Pharmaceutical Research and Manufacturers of America.