THE FRIDAY INTERVIEW/Stefan Oschmann, Merck:IF ALL goes to plan, Stefan Oschmann will be kept busy over the next year or so bedding down the acquisition of Schering-Plough. With the $41.1 billion deal still in the balance, though, that's a subject the Merck executive can't discuss right now.
In the meantime, he is excited by the company’s significant expansion of its Irish business.
Merck is currently developing a new €220 million biologics plant in Carlow. It has also invested €85 million in expanding its Ballydine plant in Tipperary to bring RD capacity to the Irish operation and enable the manufacture of tablets and capsules for clinical trials and the market.
Ireland, where the company operates as Merck Sharpe Dohme (MSD), comes under the oversight of the quietly spoken Oschmann, who is president of the US drug giant’s operations in Europe, the Middle East, Africa and Canada.
He points to the cluster of pharmaceuticals firms in Ireland and its pool of talent as the reasons for the decision to locate the vaccines plant in Carlow.
“Ireland has become . . . a centre worldwide in this area and you find more skilled people in Ireland than in almost any other place. There have been so many governments trying to persuade us to put that facility in their country and, at the end of the day, it was that very factor that decided that we would expand in Ireland.”
Oschmann is in Dublin for a gathering of Merck regional executives, the first such event in Ireland, where the company has had a presence since 1976.
While Merck in Ireland has been a good news story, the company has been confronting significant challenges in the global market even before the onset of the current financial crisis.
“If you look at the challenges the pharmaceuticals industry has, even without the financial crisis, it has been a perfect storm,” he says, citing a drop in research productivity, more stringent regulatory oversight and a changing relationship with the consumer.
“You look at the overall output of approved new molecules of pharma and biotech industries worldwide, there are significantly fewer products being approved. You see that agencies, regulatory agencies in several countries are focusing much more on the safety side – they are more concerned about potential risk than they are about the benefit a novel medicine could bring.”
On one hand, this has pushed up the development costs for companies; on the other, companies with pipeline gaps and imminent lapsing of key patents are chasing pipeline by acquisition.
This has seen the pharma sector defy the shutdown in the global MA market in the first quarter of 2009. Apart from Merck’s pursuit of Schering-Plough, the world’s largest pharma group, Pfizer, has moved to acquire biopharma firm Wyeth and Swiss giant Roche swooped for the proportion of biotech group Genentech that it did not already own.
“Healthcare and pharma is still a very fragmented industry compared to others. If you look at other industries, a global market leader would have market share of maybe 20-30 per cent while in pharma that’s more in the area of 10 per cent.
“Given the economic and scientific pressures I was talking about earlier on, it is only natural that there is a new wave of consolidation happening. I don’t think that there is any major pharma company that does not continuously and actively scan the environment for opportunities.”
Industry-wide pressures aside, Merck has had its own traumas in recent times, most particularly with the withdrawal from the market of its blockbuster arthritis and pain relief drug Vioxx and, subsequently a series of lawsuits.
Ironically, it was the Vioxx debacle that saw Oschmann elevated to his current position following the departure of two of the three top executives in the company’s drug prescriptions business, Merck Human Health.
This was part of a management shake-up under chief executive Dick Clark that has entailed a major corporate restructuring with a refocused business strategy that includes a notable investment into emerging economies, greater emphasis on outsourcing and significant jobs losses across the group.
Merck, Oschmann says, has been moving much more towards a collaborative model in its pursuit of new therapies. While it has sought to maintain its level of in-house expertise, the company has, in common with most of the industry, moved to outsource part of the development process.
“Merck after Dick Clark took over took the decision that we want to have a very high ambition level that would require us to reinvent our business model. We’ve done this in RD, we’ve done this in manufacturing, we’ve done it in the commercial space and, if you look at the indicators that we have defined to track our progress, we’ve made some significant achievements in these areas. The Schering-Plough merger situation again is a major factor.”
Pharmaceuticals are considered somewhat recession-proof and Oschmann agrees the sector has not felt the same strain as many other sectors. However, he argues, the business is not immune to the travails of the economy.
“At the end of the day, our revenue base depends on tax money, social taxes, social security contributions and similar things and governments will have limited freedom to spend money. They will have to prioritise very hard after they are through the stimulus period. So I think the healthcare industry is going to be affected by this like other industries.”
This is especially so as drug companies no longer work directly with individual physicians but rather with regional or health funding authorities.
“On the other hand, we are not exactly producing luxury goods. It’s mostly about life-saving medicines and similar things, so it’s a mixed bag. I think we will be less affected than other industries but we will be affected too.”
Still, Oschmann is confident there are plenty of opportunities for Merck and others. “Pharma innovation comes in waves and we are convinced that the next wave is about to happen. Neuroscience is a big challenge to this industry. We are making progress but we haven’t made enough progress.”
Another area of particular interest at the moment is vaccines – the business at the heart of the Carlow expansion. One of Merck’s brightest prospects is Gardasil, the first cancer vaccine globally, which seeks to prevent cervical cancer. “Both scientifically and commercially, it is a very exciting time for vaccines and we are investing.”
ON THE RECORD
Name:Stefan Oschmann
Age: 51
Position:President of Merck for Europe, the Middle East, Africa and Canada
Background:A trained veterinarian, he joined Merck in 1989, working in several European operations. From 1994 to 1999, he was managing director of MSD Austria and in 1999, he was made vice-president of Merck Sharpe Dohme Europe and managing director of MSD Germany. He became senior vice-president Worldwide Human Health Marketing in 2005 before assuming his current position in July 2006. Oschmann is a member of the Senior Leadership team of Merck.
Family:Married with two children
Something that might surprise:He is a keen fan of horseracing, keeping tabs on major Irish and British meetings on the internet at weekends as well as owning a couple of brood mares.
