Merck & Co., Inc (NYSE:MRK) heading out of murky waters

Posted by Nathan Alexander June 17, 2013 0 Comment 1930 views

Merck & Co., Inc (NYSE:MRK) is axing jobs and also eliminating an entire peel of senior management from its R&D arm. Roger Perlmutter is seeking to turnaround the unit that he says has been marked by the complex organizational design of the company. Roger Perlmutter took over the Merck’s laboratories reins in April and has now discontinued the positions of “franchise head” who managed the discovery as well as development of new drugs. These senior managers managed teams that worked on new drugs for cancer, diabetes and other diseases. Instead of these positions, Perlmutter has now instated an entirely new team of senior leaders. They will manage various aspects of drug Research and Development, right from the initial discovery stages to regulatory affairs.

In recent years, Merck & Co., Inc (NYSE:MRK) has not curbed its research spending despite the fact that rival companies cut  R&D costs in order to make up for their lost sales. The drastic drop in sales was due to an entire gamut of blockbuster drugs losing their patent protection. Post setbacks in its labs, MRK investors have been persistently pressurizing the company to chop its R&D budget.

Is there a Solution to the Drug Patent Problem?

It is a fact that drug companies have been suffering from a research downslide but their problems actually run deeper than that. To a large extent, the U.S. intellectual property laws decide what profits the companies will eventually garner.  One probable solution is to give the drug inventing company exclusive rights to sell its drug for at least 15 years after the drug receives the FDA nod.

On the face of it, this may sound simple, but that’s not exactly how the system currently functions. At the moment, patent protection covers drugs from its copycat versions for 20 years post invention if the drug. This is bitter medicine for pharma companies as it can take eight or more years post invention to actually gather sufficient data to get any drug past the U.S. FDA. Once that patent expires, 80 percent of the brand name sales can simply vanish into thin air within under a year and generic competitors are just waiting in the shadows for that to happen. And so, just having a strong R&D team and a fantastic drug cannot see a company sail the profitability boat.

About Nathan Alexander

Nathan Alexander holds bachelor’s degrees in Journalism and European Studies from Boston University. Nathan reports round up the day’s business and financial market news and include keynote interviews with major business players and updates on Asian, European and US stock markets. He has interviewed heads of leading European banking institutions such as European Central Bank President Jean-Claude Trichet and HSBC Chairman Stephen Green, and CEOs from the business world including Microsoft founder Bill Gates, Virgin Chairman Sir Richard Branson and former Porsche President and CEO Dr Wendelin Wiedeking.

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