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Arris Pharmaceutical Corp. and Sequana Therapeutics Inc. join up in a merger that creates a new company, Axys Pharmaceuticals, that "will be the first company integrated from gene to drug," according to a spokesman. Amersham Life Sciences and Pharmacia Biotech link up to form Amersham Pharmacia Biotech Ltd., a new company that "will be the largest biotechnology supplier in the world." Triangle Pharmaceuticals Inc. acquires fellow pharmaceutical company Avid Corp., thereby gaining "access to a novel protease inhibitor [that] complements our portfolio of anti-HIV drug candidates," in the words of David Barry, Triangle's chairman and CEO. SmithKline Beecham PLC calls off merger talks with American Home Products Corp. to start discussions with Glaxo Wellcome PLC, only to have the deal dwindle to nothing as a result of basic policy disagreements. Just another short season in the pharmaceuticals trade, with rumors of mergers, talks about mergers, and actual mergers dominating the thoughts of everyone in the industry, from scientists to sales staff. Indeed, nobody connected with the drug business, from large multinationals to start-up biotechnology firms, is immune from the rumor mill or the actuality of acquisition. For scientific personnel, all the activity begs the obvious question: Will the current merger frenzy reduce the amount of research and development in the drug industry, and thus jeopardize their careers? After all, mergers are designed to reduce overhead. One way of achieving that goal is to consolidate the R&D labs of merger participants. PRODUCTS WANTED: Mergers create a need for blockbuster products, which require a major R&D effort, says Steven Grossman. Nobody doubts that this will inevitably happen in some cases. However, analysts consulted by The Scientist assert that the medium-term effect of the merger mania is likely to be positive for R&D at best, and neutral at worst. "The mergers change some of the ground rules, but in the end all it means is that there's a bigger corporate mouth that needs to be fed." That's the opinion of Steven Grossman, a former deputy assistant secretary for health at the Department of Health and Human Services who is now director of health policy at Hill and Knowlton in Washington, D.C. "Mergers increase the need for blockbusters, and for products to sell," Grossman continues. "In pharmaceuticals, you can't get to products without a research program." Ronald Hanser, head of Hanser & Associates, a public relations firm that specializes in the health care industry and merger/acquisition activity, agrees: "It seems to me, as an observer of health care and medicine for 25 years, that it's a no-brainer. Companies will look for ways to increase their R&D. It's the feed trough that feeds the cash cow." That optimistic view does not mean that individual researchers in the industry won't suffer disruptions to their careers. "There is some elimination of duplicated functions, and some people will end up losing their jobs," warns Stelios Papadopoulos, a pharmaceuticals industry analyst at Paine Webber Inc. Nevertheless, Papadopoulos agrees with Grossman that the rash of mergers won't inflict any permanent harm on research tied to drug discovery. What will change, analysts agree, is the balance among giant pharmaceutical companies and the rest of the drug-related industry. "Pharmaceutical mergers will focus more resources into the pursuit of potential drug blockbusters, worth $500 million or above, that can provide enough revenue and profit to move the new larger corporation's bottom line," points out Grossman. "This will simultaneously create vast new openings for smaller and niche companies to pursue scientific discoveries thought to have lesser but still significant potential--upwards of $200 to $300 million in revenues. "In addition, the 'discarded' mix is likely to produce some blockbusters as well .... Thus, after an initial blip, the result of mergers will be to create more research jobs in merged companies and more research jobs at the cutting edge of biomedical research entrepreneurship." NECESSARY INGREDIENT: R&D is the feed trough for the cash cow, declares Ronald Hanser of Hanser & Associates. Where will the money come from to support such increases in R&D budgets? "Most savings come from streamlining the bureaucracy and manufacturing," explains Papadopoulos. "Mergers never significantly reduce R&D." Adds Hanser: "Efficiencies in finance, marketing, information technology functions, and the like will make possible [in R&D] what wasn't possible yesterday." Analysts base their optimism about the growth of R&D dollars on pharmaceutical companies' experience in a related field: sales forces. In the early 1990s, says Grossman, drug companies were substantially reducing their sales forces, because they viewed 'detailing' as inefficient in light of the way in which the marketplace was evolving. But when that move turned out to be self-defeating, the companies started hiring again. "Since then," says Grossman, most of the companies have experienced significant growth in their sales forces. The conclusion is that sales and research are the two essential ingredients of future corporate growth in the pharmaceutical industry. No company can do without a substantial investment in both." The net effect, according to Grossman and other analysts, will be a rising tide that will lift all boats. Internal R&D staff, independent research institutions, small biotechnology companies, and academic departments that collaborate with the pharmaceuticals industry all stand to gain from the increased commitment to R&D. Certainly the demand is there for R&D. Estimates by a variety of disease foundations put the cost of uncured diseases in 1996 at a huge $573 billion. Of that, cardiovascular diseases accounted for $128 billion, cancer $104 billion, Alzheimer's disease $100 billion, and diabetes $92 billion. Yet, over recent years, the number of new chemical entities (NCEs) launched by the 20 largest pharmaceutical firms has shown a steady decline. Whereas the top 20 launched 29 NCEs in 1990, they introduced only 16 four years later. Continuing decline in the launch of new drugs will have a significant effect on the revenues of pharmaceutical companies. According to a study by the pharmaceuticals company Roche, a shortage of 25.5 NCEs per year will reduce the rate of revenue growth of the top 10 pharmaceutical companies by 20 percent. Equally plainly, there is no lack of opportunities for successful R&D. One Roche study suggests that more than 10,000 potential drug targets and gene products beckon the industry. That figure contrasts with slightly more than 1,000 current drug targets. Those financial and scientific criteria point to the need for and desirability of increased R&D by larger, newly merged pharmaceuticals corporations. From the point of view of individual scientists in the industry and academic departments closely linked to it, the situation won't necessarily seem so neat and tidy. "The combined entity never pursues all the same lines of research as before," explains Papadopoulos. "Somebody particularly closely wedded to a specific project deemed not appropriate might choose to leave, or a whole category might be made no longer a priority." Newly merged companies "may spend fewer total dollars for research effort C rather than A or B, because it may be more efficient and accomplish more," remarks Hanser. "They will say: 'We won't need two of every research director." For scientists who see the glass half-full rather than half-empty, even that situation will represent opportunity. "On occasion," comments Papadopoulos, "people will split off from a large company to pursue their own R&D." In fact, the new environment created by the mega-mergers will actively encourage such entrepreneurship. "as the merged companies get bigger, they will be less interested in products with $100 million to $200 million in potential revenues, because they're not in that particular area or there's not enough potential revenue," says Grossman. "They're likely to outlicense those products. Plus, these are large enough numbers to attract investment capital. Many more scientists will have the opportunity to go out with the license and become biomedical entrepreneurs." Certainly, pharmaceutical companies are unlikely to ignore the niche areas of drug discovery, even if they do not have direct control over them. "I don't see any reduction of R&D in niche areas, because the marketplace is king, and they're always looking for a better mousetrap," says Hanser. That sentiment is echoed by David Generelli, manager of investor relations for Axys Pharmaceuticals Inc., South San Francisco, Calif., the company created by the merger of Arris and Sequana. "We're looking to do bigger deals moneywise," he explains. "We hope toward the end of the year to put together a gene-to-drug collaboration larger in scope and breadth than any of our previous deals. In other words, there will be more research all around. We've just about doubled the size of the company, from 200 to 400 employees (of whom about 335 are scientists). It will, through simple economics, take more money down the road to fuel the engine. You've got to keep feeding the beast with R&D." One sign of the changing nature of pharmaceutical R&D occurred in March. American Home Products moved four managers from Genetics Institute, a biotechnology company that it owns, into major roles running research at Wyeth-Ayerst Research, another AHP subsidiary that specializes in nonprescription drugs. Traditionally, research and researchers in biotechnology and pharmaceuticals have remained separate. The move, said AHP Executive Vice President Robert Essner, "will allow the company to benefit strongly from the combined strengths of the research pipeline, and apply a focus on the strongest products in the pipeline." What scientists involved in mergers seek, adds Hanser, is a definite view of their roles in the newly merged corporations. "The important thing is having a clear vision and communicating that to everyone involved," he points out. "One of the worst scenarios is that management doesn't communicate to employees that the corporate mission is to invest to the maximum in research." Peter Gwynne, a freelance science writer based in Marstons Mills, Mass., can be reached online at PGwynne767@aol.com.

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