Merck_PE - Reprint 9985050 - (Page 3) a particular mechanism in schizophrenia; but there are other things Merck is doing in neuroscience that you don’t really hear about because they are still early-stage. Licensing and M&A have become just another form of R&D in the industry. How do the two functions overlap at Merck? Dr. Kim tells all the scientists that it’s their job to know what’s going on in a therapeutic area, and to get the best programs—whether they come from our own basic research invention or from outside Merck. And they take that very seriously. As a result, scientists view the licensing group as partners, as the instrument of how these people are going to carry out their vision. The basic research scientist will say, “I was at the American Diabetes Association and I saw this great poster. You should call this company and see if they’ll talk to us.” tic area experts for due diligence, and then the structuring of the deal and the commercial terms. The licensing group shows the opportunity to the therapeutic area group; if they’re interested they do due diligence. If the opportunity is still interesting, it comes to my group to talk about terms. Is there anything that makes the Merck business development function unique from other companies? The fact that we have a scienti c scouting organization is unusual. We get feedback from partners and potential partners who were impressed with Merck when they met the scientists—and that’s what sparked a strong interest in work- example, take Ray Hill, who is our scout in England and the second scout we hired. Ray is a neuroscientist, and he got to know Addex right when they were founded. Ray has been there since then, chatting with them, and became interested in what the company was doing. And we ended up doing not one but two deals with Addex. In December, we signed a basic research deal around a Parkinson’s compound, and then in January of this year, we signed a second deal with them to work on the preclinical schizophrenia drug. In 2007, Merck tendered an impressive number of deals. Do you expect a similar volume of deals in 2008? The number is growing. We get teased by our investor relations people, who call us up every quarter and ask, “How many deals are there?” And we always say, “40.” But they’re always a different 40. Those are the deals that advance. Our external scienti c affairs liaisons and scouts see somewhere between 5,000 and 6,000 opportunities a year. We don’t start out with a target— we’re driven by the quality of the opportunity. We didn’t start out last year looking for three Phase III deals. Obviously, if we can nd late-stage deals that we think are a good opportunity, that’s great. But that’s a very unusual year. Is licensing technology more or less risky than licensing a compound? It all depends on what you think is risky. For a compound, it’s more binary. It’s less risky in that you know what you’re buying and you have plans for it. But if that mechanism of action fails, then it’s done. With technology, in a sense, it’s much more dif cult to measure later We are driven by the quality of the opportunity. We didn’t start out last year looking for three Phase III deals. Obviously, if we can find late-stage deals that we think are a good opportunity, that’s great. But that’s a very unusual year ing with Merck. We’ve had a scout in Japan for many years, but we beefed up the rest of the organization about three years ago. The scouts are assigned geographically so they can get to know the companies in their region. In addition to our scout in Japan, we have four scouts covering Europe, one in Korea, one in China, and US scouts in San Diego and San Francisco. There are some hints that this is being copied by some of the other Big Pharma companies—so it must be a good idea. Has the scouting organization proven its return on investment? I think so. It’s good to get to know people and make them feel comfortable with who we are at Merck, what we’re interested in, and what we’re about as a company. You can see how that plays out. For How does the company facilitate those conversations? When it comes to licensing, there are two basic groups: external scienti c affairs—there’s 50 or more of these people—and our so-called scouts. All of these people are scientists. Most came from inside the Merck research labs, so they know each other. It’s a scientist-toscientist relationship. It’s just that the people who are in the licensing group have this additional skill of knowing how to contact people and how the process works. One of the strengths of the way Merck does business is that all partnership activities are all handled under one umbrella group: scouting and evaluating, working with the therapeu-
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