Merck, Du Pont to Form Venture to Produce Drugs : Pharmaceuticals: The deal is seen as a creative solution to the industry’s voracious appetite for research and development funds.

Merck & Co. and Du Pont said Wednesday that they agreed to form a joint venture to create an independent, research-driven pharmaceuticals company that would operate worldwide with sales of about $700 million in its first year.

Du Pont, the giant Wilmington, Del.-based industrial company with interest in chemicals, plastics and fibers, will contribute its entire pharmaceutical and imaging agents business to the joint venture. Rahway, N.J.-based Merck, the world’s largest pharmaceuticals company, said it will provide its research and development and international marketing expertise to the venture. It will also provide cash and marketing rights to several prescription drugs.

The joint venture--to be called Du Pont o Merck Pharmaceuticals Co.--will be a substantial new player in the pharmaceuticals business with a research staff of about 1,500 people and a first-year research budget of about $230 million, increasing to about $400 million in 1995. Analysts said the joint venture is a creative solution to the pharmaceutical industry’s voracious appetite for research and development dollars and the needs of individual companies to fill gaps in marketing and research expertise.

For Du Pont, the joint venture also gets it out of the day-to-day management of a business it has “invested heavily in with limited success,” said Viren Mehta of the New York-based pharmaceuticals research firm of Mehta & Isaly.

Merck Senior Vice President Francis Spiegel said the company, a unit of Swiss-based Merck AG, has deliberately avoided the “megamergers” that have occurred with frequency in the industry in recent years as companies sought more marketing and research dollars to keep up with the rising cost and difficulties of bringing new drugs to market.

“A lot of our competitors went for mergers and what we found is that when they did, they had to go at a premium over the market price. . . . We didn’t want to go that route,” Spiegel said in an interview. Merck preferred to pick “good partners” in joint ventures to fill its needs, he added.

Despite Merck’s size, it still has only about 5% of the world market, he said. It is the industry leader in research spending, with more than $850 million budgeted in 1990, but that is still less than 5% of the world’s research dollars, he said.

“We decided if we want to be a premium growth company, we needed more research effort. We need alliances,” Spiegel said.

Merck Chairman and Chief Executive P. Roy Vagelos said the company’s research budget and research staff of 4,500 are substantial. “But we believe even more is needed for us to do the important research that needs to be done. The way to success in this high-risk business is to invest more in research and to invest it wisely,” he said in a statement.

Du Pont Chairman and Chief Executive Edgar S. Woolard Jr. said the joint venture gives Du Pont “the opportunity to realize more quickly its vision of being a major player in the pharmaceuticals industry by bringing together two well respected health-care companies.”

The companies said the joint venture’s first priority will be to build its European business base by adding some current Merck drugs and by increasing its European sales force to at least 650 people in the next five years.

Merck will contribute to the joint venture certain marketing rights in five European countries to the anti-Parkinson disease medicine Sinemet and to the cardiovascular medicine Moduretic.

Analyst Mehta pointed out that those products are a small part of Merck and are primarily older drugs whose patents will soon expire. Putting the marketing of these older products in the joint venture “frees up the sales force to do more important things,” he said.

The joint venture will also market--upon receipt of regulatory approval--in those countries a brand of a compound Merck is currently testing to reduce enlarged prostate glands. Merck will retain marketing rights to Proscar, another brand of the prostate medicine. All of Du Pont’s prescription drugs on the market will be part of the joint venture, including the anti-clotting agent Coumadin and the analgesics Percodan and Percocet.

The companies said they don’t expect the research efforts of the joint venture to produce significant commercial results until the late 1990s. “This is a long-term deal,” Spiegel said.

The idea for the joint venture grew out of a separate cross-marketing and research and development deal the companies entered into last October, Spiegel said.