More interesting than the numbers themselves are the implications of this growth. The addition of another billion people over slightly more than a decade requires a 40 percent expansion in the global food chain, another 40 percent spurt in the availability of fresh water, and 50 percent more energy—all just to keep pace with the status quo.  Equally important is the skewed distribution of this new population profile. The sub-Saharan Africa and South Asia regions account for most of the increase, while in the northern climes population totals are set to decline, with key economies like Germany, Italy, Japan, and Russia slated to actually have fewer people in 2025 than today. And many of them will be elderly and female—not additive to the resource mix.  The rise is also disproportionately more urban than rural.  Whereas today there are 10 cities around the globe with a population of 10 million plus people, the UNPF projects that there will be upwards of 21 such cities by 2025.

What do the new numbers really mean for the business model and strategic focus in health care and pharma? Several points come to mind.

First, more people has a hidden upside—it’s called human capital. Leveraging the energy of more young people and women can yield rich dividends in economic growth. Good health is a pre-condition for achieving compensating gains in productivity to alleviate the burden of population on resources.  The health dividend also works in addressing the claims of aging populations, a cohort no longer limited to the “mature” industrialized markets. Poor countries are growing older too.

Second, that “bottom billion” of the customer base that underpins Big Pharma’s new commercial model for developing and emerging markets is going to get larger.  Cracking the “reverse innovation” nut for products and processes in a way that addresses their needs will add significantly to the industry’s success ratio in regions with the most substantial prospects for long-term revenue growth.

Third, accelerated urbanization will create new opportunities for more efficient drug distribution and to link drug therapy more closely to the provision of basic health services. The trend offers the ability to demonstrate how access to essential medicines can drive improvements in primary care and overall health outcomes. This is particularly true in maternal and child health as well as the prevention and management of chronic disease.

Fourth, it follows that drug-makers should devote time and attention to contributing to health system reform, focused on understanding how medicines can more efficiently find their way to all patients who need them, not just the affluent 10 percent at the top.  Applying “cheapening technologies” at the root of the supply chain and learning more about basic consumer preferences is central to this.

Fifth, the relationship between health, disease and the degradation of resources and the environment is likely to see more scrutiny. Interventions, tools, and technologies that help mitigate these effects represent a strong potential growth area for companies active in the health space. Quite simply, it argues for a widening of the product franchise for pharma in the years ahead. Cancer prevention and diagnostics along with nutrition management, food supplements, and control of obesity are research targets that come immediately to mind.

Finally, consider the reputational assets to be found here. One of the most prominent statistics cited by the UNPF in recording Monday’s transition to the seven billion society:  a baby born in the US today has a 50 percent chance of living to the age of 100. It’s the best argument I have heard for awhile of the value from investing in medicines innovation.

William Looney, Editor-in-Chief

“These are very difficult times for the research-based industry. To be successful, the industry is going to need to improve the efficiency of its R&D process, attract the assistance of regulatory authorities around the world, and get a handle on an increasingly difficult reimbursement environment,” Tufts Center Executive Director Ken Kaitin told Pharm Exec. The importance of replenishing the pipeline with useful new medicines has never been more stark, as this year and next also mark the peak in the trend toward patent expirations.  The industry is on the cusp of an unprecedented loss of revenues:  at least $130 billion, according to IMS and other industry data crunchers.

The primary conclusion of the report is the unrelenting progression of costs.  It is now higher than ever, with the average price tag to bring a compound from discovery and proof of concept to commercialization, minus opportunity cost, topping out at $1.3 billion. And fewer new products are likely to be anointed as blockbusters, with annual sales in excess of $1 billion. The science behind these medicines is more daunting while the data on efficacy is questionable, particularly when framed in the long-term perspective that is increasingly required by payers. The Tufts research also documents the ways in which payers and intensifying therapeutic competition within classes are combining to slow uptake of new drugs, with most fresh innovations failing to realize the initial sales expectations of Wall Street after launch.

In response, pharma is doing better within its own zone of control, focusing on internal changes designed to lower operational costs and slow the failure ratio for compounds at a late stage of development.  These measures include greater reliance on translational science to help identify the right disease targets for new molecules; a commitment to partnering with external service providers to share risks, reduce cycle times, lower costs, and improve resource management; and greater use of sophisticated portfolio management techniques.  These approaches are promising in that they lower costs while also ensuring that development programs are prioritized around those compounds most likely to find favor in the marketplace.

Other near-term trends highlighted in the Outlook 2011 are the following:

*  The FDA will focus its efforts on confronting new emerging threats to public health, led by antibiotic resistance, emergency drugs, anesthetic agents, new therapies for cognitive disorders, and newer and better pain medications.

*  Although more than half of all FDA-regulated clinical trials in 2010 were conducted outside the US, sponsors will seek to decrease the number of countries hosting development activity in an effort to reduce global logistical and regulatory complexity. Consolidation of effort will be the norm.

*  Monoclonal antibodies (mAbs) remain the hottest arena for competitive research, as annual global sales of these products currently approach $40 billion.

*  Among private payers in the US, risk-sharing agreements to manage uncertain outcomes and costs —where pharmaceutical companies agree to share the risk regarding a newly approved product’s cost effectiveness in clinical practice — will become more common.

One issue not noted in the report is the implications of conducting so much trial work in settings outside the US on the flagging attitude toward risk.  If the industry proves lax in regulating itself with the strong internal controls required to prevent abuse or neglect in countries where official trial standards are weak, then confidence in the science behind research could wane, leading to fewer new approvals.

Eight strategic issues that should keep “C Suiters” reaching for the NoDoz in 2011

The consensus is that 2011 will be a bad year for Big Pharma.  It must confront a breaking wave of patent expirations, while fiscal retrenchment has created an innovation cycle in reverse as payers find new ways to curb the drugs bill.  Risk-averse regulators are transforming old tools like the FDA “complete response letter” into a registration parking lot, with no exit ramp to connect companies to a distracted — and increasingly impatient — community of clinicians and consumers.

So as the days of January tumble into early darkness, let’s inventory a few of what I call the “night stalkers” — issues that are likely to keep members of the C-suite awake beyond a sensible “lights out” time.  

R&D:  It’s Your Dime!  From both an economic return and societal point of view, the cost of new drug innovation is best shared – across companies and especially across markets.  It is particularly important to maintain the principle that countries make a fair contribution to R&D, through national pricing practices that avoid a “race to the bottom” where every payer seeks the lowest possible transaction cost with the industry.   Yet commitment to this ideal is eroding everywhere, including the US.  A consultation paper on “value based” drug pricing released last month by the UK Department of Health actually puts a clear metric down against sharing the global burden of R&D, calculating that any extra dividend the UK pays for innovation is economically irrational.  It will neither stimulate more domestic R&D or lead to savings – in fact the report says there is no benefit but instead “large costs to be borne exclusively by the UK public.“  Such an argument is predictable had it come from a outlier country like New Zealand, where well-medicated sheep outnumber patients, but as an official statement of policy in the UK it speaks volumes on where this debate is heading.

Corruption and Compliance.  Claims for malfeasances ranging from off-label promotion to deceptive pricing continue to mount, with more than $10 billion in compliance charges imposed on big pharma over the past five years.  With a return on investment of more than 100 to one, in terms of what it costs to litigate, US and European regulators are pushing the extraterritorial reach of enforcement legislation to cover a potentially rich new vein of graft in emerging markets. Here, the industry is finding itself on the front line of a vast cultural disconnect:  in most developing countries, medicines are sold through a web of interconnected relationships dependent on close ties to government. Hence corruption has an entire different meaning — it’s called sharing the wealth — and parsing the cultural divide is going to prove a challenge.

In the US, the scope of action has quietly spread to include criminal charges against individual executives; eventually, a big pharma company will be barred from doing business with government programs that account for more than half the US market.  Despite this, pharma has failed to address the problem from an industry-wide reputational, as opposed to a legal, standpoint.  ”Tops in Fraud” is a ruinous moniker for a business so dependent on basic issues of trust like integrity, quality and safety – when will the industry, as part of a collective action, replace the gamey politicking with good policing?

Technology Transfer Mandates. Know-how and expertise is a tangible asset for pharma, one that should be allocated sparingly to partners who may one day be competitors. This dynamic is particularly evident in the emerging markets, where governments have emerged as formidable industrial policy negotiators in insisting that new innovations be shared with local partners as a condition for market access.  When a drug multinational has to score a deal where it shares production with a local firm, transfers the necessary technology and after a fixed period hands over all remaining exclusive rights to the partner – as Merck recently did in Brazil – one has to ask:  how really different is this from a compulsory IP license that the industry has always characterized as theft?

Conflict-of-Interest Vigilantism.  Governments, academia, activists and the media – all skeptical of the profit motive as driver of a built-in bias – are applying conflict of interest rules to put industry on the defensive and marginalize its role in decisions on everything from publication of clinical trial results to participation in scientific panels that drive access to new medicines.   This narrow view of conflict of interest, which fails to take account of the more diverse factors that motivate and often pre-determine the responses of other interest groups, is a powerful force behind the industry’s eroding reputation.  Yet little has been done to confront and reverse the perception that since drug companies have that simple motive to market, their input on virtually every issue cannot be trusted.  Independent observers like former UN AIDS Program Executive Director Peter Piot have flagged this resistance as a key emerging issue in global health governance, which if left unresolved will limit real progress in disease outcomes.

The Margin Eaters.  There is an emerging social contract that in many ways treats the industry as a quasi-public utility, with pressure to make costly commitments normally not expected of a private enterprise. These now include revenue and profit give backs that conform to fiscal targets set by government, or post-marketing surveillance activity [i.e. REMS] that can require extensive funding of work extending beyond the normal product life cycle marked by expiration of the patent term.  Risk-sharing contracts and the outcomes-based company commitments unleashed by the “total health solution” approaches of personalized medicines are another example.  Such tools may all be positive in the abstract, but the net effect is going to be still more pressure on the bottom line in 2011 and beyond.

Breaching the Registration Firewall.  The era where a marketing license was granted without consideration of cost or pricing is now a historic artifact.   National registration agencies face significant political pressure to build the murky concept of “value” into their scientific review procedures, even though there is no textbook available on how to do this well – because in the end “value” is a matter of judgment and people assess it from different perspectives.  This in turn erodes confidence in the scientific certainty and legitimacy of agency decisions. It is also helping to revive interest in the “medical needs” clause, where regulators can remove existing approved medicines from the market on grounds that the real-world evidence of therapeutic gains fall short of expectations, or where a newer product proves superior.   Predictability through the product life cycle suffers and companies simply grow more averse to risk by shutting down promising research leads prematurely.

Wellcome Foundation — or WalMart? The traditional business model of Big Pharma — with its heavy investment in in-house innovation – is being reconsidered through new approaches that emphasize the outsourcing of R&D:  from research to “search,” with the latter linked to external licensing and partnering.  Taken to its logical extent, the new model could transform companies from innovators to distribution platforms that rely on marketing heft, size and scale to compete rather than science.  Coupled with the ruthless drive for efficiencies that have led to large-scale layoffs of once cosseted professional staff, the trend raises an important reputational question:  if the industry is no longer viewed as a wellspring of science and innovation, what strategy is in play to respond to a world that perceives industry as the WalMart of pills?

Divide and Conquer Marketing.  Stiff competition within therapeutic classes has created unheard of rivalries among companies that once were happy to share the same watering hole.  Some marketers are investing millions in brand-bashing “anti-launch” strategies to limit the uptake of newer alternative products.  The question is whether everyone loses when this logic is applied against the larger patient-first perspective that regulators and the public expect from the industry.

According to the newly released Job-Cut Announcement Report from outplacement consultancy firm Challenger, Gray & Christmas, pharma has cut more than 6,000 jobs in September alone, and more than 43,000 so far this year.

Which companies have contributed to this staggering number, and what are the underlying causes of job losses in the industry?

Most recently, Sanofi-Aventis announced its plans to eliminate 1,700 jobs in its US pharma business—about 25 percent of the company’s US pharma workers. The majority of jobs lost will be sales positions, and a small number of administrative jobs will disappear as well.

Before that, in September, Roche announced its “Operational Excellence Initiative,” which—while partly intended to analyze and restructure different segments of the company to maximize productivity and ROI—ultimately amounted to job cuts in an effort to “set the right priorities to ensure a successful future,” according to a statement released by Roche.

In May, Pfizer announced 6,000 layoffs that it said was part of “manufacturing reorganization” following its 2009 Wyeth acquisition. Possibly part of its plan to remain on track for its targeted cost reduction of $4 to $5 billion by the end of 2012, Pfizer has gone from nearly 114,000 employees internationally in Q 1 2010 to around 33,000 as of May of this year, according to a story on DailyFinance.com.

Following its 2009 acquisition of Schering-Plough, Merck began making cuts in February. The post-merger cuts would be a way to “eliminate some of the duplication,” according to a statement made in January by Merck CEO Dick Clark. “We have taken the best from both companies, from a process standpoint and a people standpoint,” he said.

And at the start of the year, way back in January, AstraZeneca announced its plan to cut around 8,000 jobs—four percent of its total workforce—over the next four years. As it does for so many Big Pharma players, the patent cliff lies at the heart of the issue. AstraZeneca products scheduled to lose patent protection this year are Armidex, a breast cancer therapy; and Pulmicort Respules, an asthma treatment.

Part of the trouble for drug manufacturers is the looming patent expiration dates and impending generics competition. Three of Sanofi’s top products—anticlotting medicines Lovenox and Plavix and cancer drug Taxotere—have or will soon have new generic competition, jeopardizing nearly $10 billion of the company’s $40 billion in annual sales, according to a story on Yahoo! Finance.

There are several other factors that are contributing to the layoffs trend:

• Structural transformations in the marketplace, focused on the declining relevance of a large sales force in an era of managed care as well as more targeted high-yield approaches to drug development that require less dedicated staff for R&D operations.

• Redeployment of assets in line with globalization and the ability to dig deep in untapped growth markets. Job losses in the US and Europe mean that more workers can be hired in countries like China—where, for example, turnover among sales forces is quite high and needs frequent replenishment.

• Advances in information technology that improve productivity for a smaller workforce. Information is not only a strategic asset; it is a labor-saving instrument to replace back-office functions and support more automation in manufacturing.

• The high cost of producing biologicals drugs are forcing companies to be more selective in where they manufacture, with fewer plants staffed by fewer people with more skills.

While such redistribution of assets and focus on greater ROI can be positive for a company as a whole, it can have negative effects on individual workers. In an industry that was once thought to be immune to layoffs, the dynamic can change if workers become wary of job loss, shifting toward a culture of bureaucratic self-preservation that may not always be in line with the importance of fostering entrepreurialism and prudent risk taking.

Jacky Law

Guest blog by Pharm Exec Europe’s Jacky Law.

It’s hard to get precise figures of how many people have been taken off the payroll at pharma and biotech companies recently. According to staffing firm, Challender, Gray and Christmas, the combined industries shed 58,969 jobs in the first nine months of 2009, 15,000 more than the whole of 2008. In total, that makes around 74,000 redundancies in just 21 months, many but not all of which came from sales forces. Figures from FiercePharma, meanwhile, show just ten companies saw 66,850 jobs go in 2009. And this doesn’t include layoffs from the merger of Roche and Genentech nor the 860 jobs that were announced at Boehringer Ingelheim in August.

They could do worse than follow the example of Medivation, a Californian company that has more than doubled its workforce, albeit from an extremely low base, from 28 in 2007 to 59 in 2008. Founded by a group of experienced professionals, its business model tries to bridge the gap between early-stage development and product launch. It finds promising compounds in markets with significant unmet needs, adds a bit of value and then sells them on to big pharma in record-breaking deals. In that sense, it is doing precisely what a team of analysts at Morgan Stanley said in January that Big Pharma should be doing, moving away from internal R&D and focus more on in-licensing. To move, in other words, from research and development to search and development.

While well-argued, it is not a particularly original proposal and forecast data from EvaluatePharma shows that while Big Pharma is certainly up for in-licensing, it is also not that keen to give up its central defining activity. Indeed, it is actually spending more on internal R&D as a percentage of sales. In 2008, it spent $69.8 billion, a figure that had grown by 9.3% annually since the turn of the century. And while it is set to slow quite radically to 1.5% CAGR from 2008–2014, when expressed as a percentage of sales, the figure is actually rising, from 15.6% in 2000 to an expected 18.5% in 2014.

Medivation, meanwhile, has done spectacularly well from buying in and partnering on. It had just two pipeline candidates in 2008, both of which have since been bought up by Big Pharma in record-breaking deals. The first was in September 2008, when a $225 million upfront fee from Pfizer for its Alzheimer’s candidate Dimebon was the largest for a single pipeline product that year. The second, in October 2009 with Astellas Pharma, brought in another $110 million upfront for the prostate cancer drug, MDV3100. That was the fourth largest upfront fee in 2009.

A reason for its success may be to do with its size and focused business development team that would confirm another suggestion on how pharma might revamp its ailing R&D model. This comes from the consultancy firm McKinsey & Co, which brought out a report in February that said scientific innovation is only part of pharma’s R&D problem. Better management could also play a part. “Increased attention to costs, speed of development and decision making,” it said, “could increase the internal rate of return (IRR) of an average small molecule from around 7.5% — less than the industry’s cost of capital — to 13%.”1

Without knowing the IIRs on Dimebon and MDV3100, investors are certainly impressed. Shares in this small company initially rose to $27.92 after the deal with Astellas Pharma, giving the company a market capitalization of $935 million, which is not bad for an outfit that has a payroll of just 59 and demonstrating there is life after Big Pharma.

Reference
1. The Road to Positive R&D Returns, Eric David, Tony Tramontin and Rodney Zemmel, McKinsey & Co Pharmaceutical and Medical Products Practice, February 2010.

Jacky Law

Pharma companies are responding swiftly to the recent earthquake in Haiti with millions of dollars in cash and drugs. GlaxoSmithKline boasted, for example, that its initial $1.2 million offering of medicines — mainly oral and topical antibiotics — was on the first airlift to the Caribbean island and that more will follow.

The UK company was not alone. By January 15, the charitable alliance, Partnership for Quality Medical  Donations (PQMD), said a total of $15.5 million (E10.8 million) had been pledged by pharma and other healthcare companies. This comprised $7.3 million in products and $4.6 million in cash, equating to one third of all corporate donations and being roughly equivalent to the £10 million pledged by the UK government.

Some pharma companies, notably Abbott Laboratories, have even been able to use the humanitarian disaster to demonstrate an altruism that extends far beyond this immediate crisis. Together with its philanthropic foundation, the Abbott Fund, the company has pledged an initial $1 million in cash and medicines to the victims of the earthquake, which comes on top of more than $34 million already donated to Haiti since 2007. The current package includes $100,000 in grants to three of its aid partners: the American Red Cross, Partners in Health and the Catholic Medical Mission Board. The company is also working with AmeriCares, Direct Relief International and other organizations to identify what drugs are most needed by the survivors.

Other biopharm companies to have responded to international calls for help include Amgen, which has said it will donate $2 million in cash. Pfizer, which has a base in the neighbouring Dominican Republic, is working with people on the ground to assess what drugs are most needed. It has also made an undisclosed cash donation and pledged to match employee contributions to the disaster fund.

Merck & Co, meanwhile, is giving $350,000 in cash and has also pledged to match employee contributions while planning an immediate shipment of $200,000 worth of medicines, including its ulcer drug, Pepcid, Coricidin cold medicine and ringworm treatment, Lotrimin. Eli Lilly is said to be donating $250,000 in cash and will match its US employees’ contributions. Bristol-Myers Squibb has shipped out a consignment of medicines, mainly antibiotics and analgesics, and donated $200,000 plus a pledge to double what its US employees give. And AstraZeneca has donated antibiotics and respiratory medicines while also giving £100,000 ($162,500) to the British Red Cross effort on the island.

Help or hindrance?
However, the lesson of Johnson & Johnson is that such generosity can be seriously undermined if it coincides with other news that doesn’t go down so well with the public.

According to PQMD, J&J is giving unspecified cash donations to relief organizations working in Haiti, as well as bandages and medicines such as Tylenol and Neosporin. But things have taken a rather sinister turn for the US company that for years has been one of the most trusted in the world. On Friday, January 15, at roughly the same time it was pledging aid for Haiti, the company’s over-the-counter (OTC) division, McNeil Consumer Healthcare, announced the recall of several hundred batches of various popular OTC medicines, including the analgesic Tylenol. This was because of a foul odour emanating from the breakdown of a chemical used to treat the wood pallets used in the storage and distribution processes. It may well be that the Tylenol on its way to Haiti is perfectly fine but the juxtaposition of events only serves to highlight the PR disasters currently plaguing this once exemplary company.

Not only did an FDA warning letter arrive on that Friday saying McNeil had known about the problems for as long as 20 months but, in an entirely separate incident, and on the same day, the US Justice Department filed charges against Johnson & Johnson for allegedly paying “tens of millions of dollars in kickbacks” to nursing home pharmacy company, Omnicare, to increase sales of its drugs, notably the blockbuster antipsychotic Risperdal.

Regarding this latter incident, Johnson & Johnson has said its actions have been “lawful and appropriate” and it looks forward to “airing the facts” in court. Nevertheless, two ‘bad’ stories coming together have the effect of compounding each other, which can cancel out the effect of one ‘good’ act if it also comes at the same time. This is because the point of altruism is to help unreservedly or, at least, for the actions to be perceived that way. Any question that a drug to relieve suffering might be tainted is not helpful.

But, notwithstanding the implications of the move, it’s hardly as if it was a surprise announcement. Lobby groups and Members of the European Parliament (MEPs) have been pushing for the change for a long time. In November 2008, a group of 20 NGOs representing patients, consumers and health insurers called on European Commission President José Manuel Barroso for public health to be treated as a higher priority, and earlier this year the European Patient Health Alliance (EPHA) hit out at “flaws” in how pharmaceutical policy is organized within the EC.

Speaking at this week’s event, EMEA’s UK director Thomas Lonngren agreed that, after 15 years, it was time to “refresh” the Agency. He also announced that it will now be abbreviated as EMA (the second ‘E’ has long seemed redundant, even though the Agency’s official name was the European Medicines Evaluation Agency). But he was eager to maintain that, despite EMEA’s new face and new corporate identity, “I don’t see any change to the way we run the industry.” Similarly, other EMEA and EC speakers at the event played down any disruption the move might cause.

But surely this is the real objective. And, certainly, there is no denying that there will be implications for the EU’s ongoing set of initiatives (concerning pharmacovigilance, counterfeiting and patient information) that make up the ‘pharmaceutical package’. Indeed, as EPHA complained earlier, because the pharmaceutical package was the responsibility of the Industry commission, “it barely addresses health at all, focusing instead on marketing and competitiveness.”

EPHA added: “EU pharmaceutical policy in general, and the provision of information to patients in particular, should be the responsibility of a health-focused directorate to ensure that this complex and critical industry is regulated with citizens’ needs are addressed, and not put second place to those of the industry.”

News of the move to the EC’s health commission (DG Sanco) will no doubt please the EPHA, just as it has pleased — as Pharm Exec Europe’s Brussels correspondent Reflector puts it — “everyone from the European doctors’ association to the Belgian health minister.” But the wheels of European healthcare regulation and the pharmaceutical package, already very slow-turning, are surely to be stalled again while this seemingly simple but potentially gargantuan shift is completed.

Roche plans to keep the Genentech site in San Francisco, and transition its New Jersey corporate headquarters to the West Coast. Additionally, research and early stage development will operate as standalone units. Roche expects to save about $850 million in the reduction of redundant services and positions, but there’s no word yet as to the actual number of jobs that could be eliminated.

Negotiations between the two firms were far from smooth. An initial $44B offer by Roche, made last July, was met with disdain by Genentech’s board of directors. Roche fired back by taking an even lower offer of $43.7B directly to Genentech’s shareholders—but that didn’t go over well either, and Roche was forced to go back to the well. Last week, the drug company made a firm offer of $46.8 billion, a price that appears to have satisfied Genentech’s board.

“We believe this is a fair offer for Genentech shareholders, and the committee is pleased to come to a successful conclusion of this process,” said Charles Sanders, chairman of the special committee of Genentech’s board of directors. “We look forward to working with Roche to complete the transaction as expeditiously as possible.”

Genentech and Roche’s partnership began nearly two decades ago, when Roche purchased controlling interest in the biotech firm. Over the years, Genentech has morphed from a smaller specialty firm to a sprawling bio-giant with annual revenue fluctuating around the $12 billion mark.

Roche has not commented on the deal beyond statements in a press release. The company has scheduled no press conferences or investor calls, and told Pharm Exec that none are in the works.

Another Mega Merger
The Roche/Genentech deal comes just three days after news broke that Merck would merge with Schering-Plough, and less than two months after Pfizer signed a deal to purchase Wyeth. Mergers and acquisitions are going strong, as Big Pharma faces looming patent expiration and a scarce supply of new drugs. However, not everyone thinks mergers are the best strategy. The New York Times comments section exploded with negative reactions after the Merck announcement. Most readers voiced fears that Big Pharma was getting “too big.”

While many analysts disagree that the general public should be concerned at this point, some did tell Pharm Exec that the push for large-scale mergers might not be the best course.

“Large-scale mega mergers at this stage in the game don’t really solve the fundamental problem,” said Peter Young, president of Young & Partners. “You don’t invent faster because you’re bigger, and the reality is that they are only buying themselves a little bit more time. The best analogy is that if you own four houses on a lot and one burns down, the others are fine. However, if you decide to glue them together in order to have more size and scale, [then] if one part of the house burns, there’s a risk that everything will burn down.”

Merck announced, a little over an hour ago, that it had signed an agreement with Schering-Plough’s board of directors to merge the two companies under the Merck name.

The stock and cash transaction is worth over $41 billion with Schering shareholders receiving $10.50 per share in cash and 0.5767 of a share of the combined company—a 34 percent premium over Friday’s closing price. Merck Chairman Richard T. Clark will assume control of the joint company. Schering CEO Fred Hassan will continue to manage the company until the end of the merger period. He had this to say in a release this morning.

“We are joining forces with Merck, our long-term partner in our cholesterol joint venture, to create a dynamic new leader in the pharmaceutical industry,” Hassan stated.

No word yet on what this means for the future of the employees, but as with the Pfizer/Wyeth mergers, cuts of redundant positions are expected.

“A key priority is keeping the best talent from both companies,” Merck stated in a release. “Recognizing that the combination will result in a much larger organization, Merck expects that the substantial majority of Schering-Plough employees will remain with the combined company.  In addition, both Merck and Schering-Plough will institute hiring freezes immediately.”

Schering and Merck have been strategic partners for years, with a collaberation on the blockbuster cholesterol drug Vytorin. The two companies came under fire last year after a study revealed that the drug was no better than its generic equivalent at lowering arterial plaque—a treatment that it was never approved for. The drug has been a billion dollar seller and has proven to lower total cholesterol levels while raising good cholesterol.

The two companies, also, failed to get an approvable letter, last year, for a combination drug of Claritin and Singulair to treat seasonal allergic rhinitis.

We’ll have more on this story throughout the day.