Not Invented Here

There's a "scout" stationed in a new Boston research tower just blocks from Fenway Park. But he's no Bill James disciple, and he's not looking for the next Red Sox pitching phenom. Reid Leonard is a neurobiologist, with 10 years' experience as a bench scientist. His job is to find Merck & Co. a blockbuster drug.

He's one of 12 drug scouts Merck employs in seven countries. Last year, the scouts and their scientific teams scoped out 5,000 biotech companies and medical schools--and their finds led to 53 licensing deals, winning Merck rights to discoveries that could lead to new vaccines and antibiotics, as well as treatments for blindness, Alzheimer's, and AIDS.

Those products, of course, would share one notable characteristic: They weren't born in Merck's own labs. That itself represents a defining discovery for the giant drugmaker. It can no longer claim all the best scientific brains, or all the answers. With in-house research failing to produce enough new drugs to fill its pipeline and a wave of older products coming off patent, Merck has to go outside for help.

That's the emerging reality across the industry. While pharma companies still stock their annual reports with images of scientists in lab coats, many now employ teams like Merck's--market-minded scientists assigned to find new drugs from someone else's labs. About 25% of the drugs moved into human testing by the 10 biggest drugmakers from 2003 to 2005 were discovered by outside researchers, according to a Tufts University study. That was up from about 15% in the mid-1990s.

The shift didn't come easily to Merck. Historically, word in the scientific community was Merck folks were condescending and difficult to work with, says Heather Brilliant, an analyst with the Chicago investment-research company Morningstar. "Merck used to have an attitude of, if it wasn't created inside Merck, it wasn't worth spending time on," she says.

More recently, though, the company has tried hard to play nice. "Merck's Got A New Attitude!" was the title of an October meeting of New Jersey drug-licensing executives. Leonard describes the change as a "cultural transformation.... It was a very deliberate process."

Three years ago, the company created a team devoted to prospecting for new leads, placing seasoned scientists at the front of the licensing effort. Many, like Leonard, spent a decade or more in Merck's own labs. Neuroscientist Margaret Beer, who scouts Israel and southern Europe, helped develop the migraine drug Maxalt during her 23 years as a Merck scientist.

Reps need a keen eye for both scientific and commercial potential. "It's all about strategy and risk," says former Merck scout Robert Gould. "How does the opportunity fit with your strategy and how much risk are you willing to accept?" They monitor journals and network ceaselessly with industry contacts. In addition to endless private meetings, they prowl the aisles at scientific gatherings and sit in on analyst's meetings. "It's really a matter of how many hours a day can you work and how much travel you are willing to tolerate," says Leonard, who spent much of last year shuttling among 40 medical schools.

Idera Pharmaceuticals, a small biotech in Cambridge, Massachusetts, was one find. Its scientific team, led by Sudhir Agrawal, had struggled for years to find a drug using antisense technology, which aims to prevent the cell's genetic machinery from making harmful proteins. But it had little luck until switching to a different strategy focused on cell proteins called "toll-like receptors" (TLR).

Last summer, that research was going well enough for Idera to approach several drugmakers about using the findings to develop vaccines. But Merck scientists had already taken notice. By December, a deal was done--in part, from Idera's perspective, because Merck already made vaccines. But also, Agrawal says, Merck was simply … nicer. "During the negotiating process … they were very clear," Agrawal says. "They were driven by the science and the data--not, 'Let's squeeze this company. They're 30 people, and they're running out of cash.'" Merck agreed to pay $30 million up front and $165 million in "milestone payments."