Survivor of the 'Patent Cliff', Dr. Stefan Oschmann, global CEO-Pharma, Merck talks to CNBC-TV18's Senthil Chengalvarayan about the significance of innovation in Research and Development (R&D) along with his diversified business in pharma, chemicals, biosimilars and consumer healthcare.
Merck Darmstadt was founded in 1668, making it the oldest operating pharma and chemical company in the world but after the first world war its foreign subsidiary was taken over and in America it got to be called as Merck and outside America it is called Merck Sharp & Dohme (MSD) while Merck Darmstadt can use Merck outside America but is called by another name in America. A publicly listed company with 70 percent of their capital held by the Merck family which is in the 12th or 13th generation, all the shareholders within the family are descendants of Emanuel Merck, the founder of the German company.
While the company is active in several areas; pharmaceutical being the biggest business but are also an important player in chemicals with most performance materials, i.e. display materials, liquid crystals, and life science tools; Dr. Stefan Oschmann heads Merck's pharmaceutical business, which is the company's largest division.
Below is the edited excerpt of the interview:
Q: Apart from being on the executive board of the parent company, you specifically look after healthcare and consumer healthcare?
A: Yes, which are again four different businesses; our largest pharmaceutical business is Merck Serono – that's our biopharmaceutical business. We have a consumer health business, we have business in the field of allergy and we are in the process of setting up a business in biosimilars where we are in partnership with an Indian company, Dr Reddy 's Laboratories.
Q: You have worked in the American Merck before you joined Merck. Is there some kind of relationship both the companies share?
A: We share some history and MSD use to be our US subsidiary until 1917. Currently the companies are totally separate.
Q: Let us get on the business side. You survived the 2012 'Patent Cliff' as it was called, when a lot of drugs went out of patent largely due to the fact that we had less drugs going off patent at that time? Was it just delaying the evitable or was it planned and is this patent cliff waiting to hit your company?
A: Any company that is active in innovation that is R&D based faces a situation that their patents go eventually and that is a positive thing because it forces companies to continue to invest in R&D and we believe that intellectual property protection is a very important driver that enhances the quality of medical care in many other areas. We were hit less because many of our products are biologics; these are very complex molecules, large proteins, monoclonal antibodies and they are difficult to make and therefore a patent expiry is not as radical as it is for so-called small molecules, products that can easily be copied by generics.
Q: But are they more expensive to make than small molecules?
A: They are generally more expensive to make, they are more complex, they have been made by cells either by mammalian cells or by microbial cells, they require very complex manufacturing.
Q: What is your R&D pipeline looking like? How much of that is in small molecule and in biologic?
A: It is balanced, about 50-50. We have a lot of investment; in cancer we search in oncology and in immuno-oncology there are a lot of biologic targets therapies, monoclonal antibodies and other advance technologies that are much targeted towards specific receptor or other mechanisms but we also compliment this with small molecules. Combination therapy is very important in cancer and currently there is a trend that the so-called noval combinations are researched because if you use several approaches to tackle cancer, the cancer cells have less of a chance to evade.
Dr Reddys Labs stock price
On January 31, 2014, Dr Reddys Laboratories closed at Rs 2607.00, down Rs 12.25, or 0.47 percent. The 52-week high of the share was Rs 2690.00 and the 52-week low was Rs 1720.50.
The company's trailing 12-month (TTM) EPS was at Rs 91.88 per share as per the quarter ended September 2013. The stock's price-to-earnings (P/E) ratio was 28.37. The latest book value of the company is Rs 457.56 per share. At current value, the price-to-book value of the company is 5.70.
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