PHARMA PRICING Merck Group CEO: We’re Not Afraid of Trump

In an interview with Handelsblatt, Stefan Oschmann says he is confident the Trump administration will honor existing pricing arrangements with pharmaceutical companies.
Stefan Oschmann, the chief executive of German pharma giant Merck Group is unfazed by Donald Trump.

Stefan Oschmann, the chief executive of German pharma giant Merck Group, said he expects the new American administration to honor existing agreements with the pharmaceutical industry. Speaking with Handelsblatt, Mr. Oschmann said he had no concrete indications of the Trump team’s intentions on healthcare, but he also expected the U.S. government to recognize Merck’s substantial contribution to American jobs and the economy.

During the election and before his inauguration, Mr. Trump repeatedly singled out the pharmaceutical industry, saying he would force down inflated drug prices. With the industry in the midst of a wave of consolidation, Merck has sought widely for new partners in recent years, while also making widespread acquisitions, particularly in the United States. Most recently, the company partnered with Palantir Technologies, setting up a multi-year deal which should see more aggressive use of data to research key medical problems.

Merck Group is the world’s oldest pharmaceutical and chemical company. It once owned the American firm of the same name, although the two have been completely separate since 1917. Discussing existing partnerships, Mr. Oschmann said the integration of Sigma-Aldrich was going smoothly, ahead of time and below budget. Sigma-Aldrich is a St-Louis-based American life sciences company which Merck acquired for €13 billion, around $13.95 billion, the largest takeover in Merck’s 350-year history.

Merck executives are deliberately a bit conventional, and a bit nerdy too. Stefan Oschmann, CEO, Merck Group

Mr. Oschmann said his company’s vast experience in integrating acquisitions helped to smooth out the process: in recent years, it had acquired Serono, Millipore, and AZ Electronic Materials, as well as Sigma-Aldrich. With that company, he said, similarities in corporate culture—both companies were very science-oriented—made everything much simpler for Merck.

Merck’s particular ownership structure made all the difference for the company, insisted the company’s chief executive. Merck Group is majority owned by the Merck family, who hold about 70 percent of the company, with the rest of the stock publicly listed. This resulted in a “healthy mixture” of long-term vision and the high demands of external investors, he said. Another key factor was that all Merck’s senior managers are partners in the company, not simply employees. Top executives were “deliberately a bit conventional, and a bit nerdy too,” he said, and this kept the company on a stable footing.

Mr. Oschmann said consolidation in the pharmaceutical industry still had a long way to run. The sector was still highly fragmented: the largest player still had less than 10 percent of the entire market. “This means there will undoubtedly be further takeovers,” he said. In addition, a number of important startups would be bought up or would manufacture their own products under license for larger market players, he added.

In recent weeks, Mr. Oschmann has visited Silicon Valley in search of partnerships, a key element in his overall strategy. This paid off immediately in the deal agreed with Palantir, one of California’s most highly valued startups.

“For us, everything is about science and technology,” said Mr. Oschmann: “We realize there is a lot of progress made outside the company, so we work very intensively with startups.” He said that Merck had its own venture capital fund, making direct investment in promising new players. Germany had a good infrastructure for development, and Merck would continue to build key relationships there, he said. But the country had to catch up with the United States and Israel, he added, both of which had highly-developed entrepreneurial cultures in drug research and marketing.

Merck’s cooperation with startups was a clear win-win, said Mr. Oschmann. The smaller partners brought ideas, dynamism and creativity, while his company offered them help with structures, processes, and quality. “We as a company are extremely curious,” he added, “so it is enormous fun for us too.”

The company also collaborates with far more established players. Merck has a close working relationship with Pfizer on developing powerful new cancer drugs, which use the body’s own immune system to fight off malignant cells. Mr. Oschmann said the partnership was paying off, with clinical trials complete and drugs submitted for regulatory approval on both sides of the Atlantic.

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The partnership with Pfizer brought in a wealth of American experience with drug development and the approval process, something Merck had been lacking, he said. Merck had a very important role in the United States now, with almost half of the company’s employees based there. In fact, over 25 percent of Merck’s revenue today comes from the American Market: 10 years ago, the company barely had a presence there.

Merck is less dependent on America than some other German pharmaceutical companies. Unlike some others, Merck has yet to announce a voluntary change in pricing policy in response to Mr. Trump’s victory. Although Mr. Oschmann said he felt political changes in the United States would have no particular impact on Merck, he also seemed to rule out new investments for the immediate future. “We have around €11 billion in debt, so we’ll first pay that off,” he said.

Asked about political developments in Europe, Mr. Oschmann said he did not agree that German CEOs should speak out more in support of Europe, particularly in the wake of last summer’s Brexit decision. He said leading German executives were strongly pro-Europe, but suspicion of top managers could mean a public intervention would be counterproductive, he said.

 

Sven Afhüppe is editor-in-chief of Handelsblatt. Kirsten Ludowig is deputy editor of Handelsblatt's companies and markets section, specializing in the trade sector. To contact the authors: [email protected], [email protected]