Schering CEO Warns Of Loss Of Innovation In Drug Cos' Deals

A cash crunch among smaller drug developers has created more buying opportunities for large pharmaceutical companies, but Schering-Plough Corp.'s (SGP) leader says that's not always good for medical innovation.

Schering-Plough Chief Executive Fred Hassan, who has agreed to sell his company to Merck & Co. (MRK), says valuations for smaller drug developers have plunged by at least 50% over the past 12 months.

These companies' experimental drugs in mid-stage development, which might have fetched $100 million in a sale or license deal a year ago, are now worth "half of that or less," Hassan said at a conference on medical innovation Tuesday at the Cleveland Clinic.

While the crunch has created buying opportunities for Big Pharma, the plunging values have dashed the hopes of many entrepreneurs who fuel innovation, Hassan said.

Previously, many of these companies would have looked to initial public stock offerings for funding. But IPOs have dried up, and smaller companies are running out of cash, pushing them into the arms of Big Pharma.

Hassan said that's not necessarily ideal because "the innovation power starts to go down when one of these companies becomes a part of Big Pharma."

Separately, Hassan called on the U.S. government to provide increased funding for the National Institutes of Health to help advance cancer treatment. He said the NIH, which funds research in cancer and other diseases, should get a "few more billion dollars" annually dedicated to research on the biology of cancer.

"We need to crack the code," he said.

Hassan also said the U.S. Food and Drug Administration should develop more flexible regulatory pathways for new cancer drugs to be approved, so that such drug development becomes more "attractive of capital."

-Peter Loftus; Dow Jones Newswires; 215-656-8289; [e-mail]