`Think Of It As A 3,600 Person Startup'

Working for a joint venture set up by chemical titan DuPont Co. and No. 1 drugmaker Merck & Co. seems an unlikely role for David W. Martin Jr. Fearing a loss of autonomy, he quit as Genentech Inc.'s R&D chief just before Roche Holdings Ltd. bought control. Yet he jumped at the chance to lead R&D at Du Pont Merck Pharmaceutical Co. He saw "a unique opportunity to create a culture that is not Du Pont, not Merck, not Genentech, but the best of all of those."

Five months into the job, Martin is still gung-ho. His team is cocky enough to think it can eventually outshine Merck in R&D: "We can evolve more rapidly, be more adaptable. Think of it as a 3,600-person startup."

In a lot of ways, it is. There are few layers of management at Du Pont Merck. The researchers make most key decisions, maybe after talking with Martin. Scientists can advance in pay and status without having to leave the lab and go into management. Levels of rank are blurred. Every employee is awarded "phantom" stock, a measure of worth that will increase if the joint venture is successful--and can be sold back when employees leave. And the focus at Du Pont Merck is narrow: chiefly four groups of disease.

TRUSTING PARENTS. Merck Chief Executive P. Roy Vagelos thinks all this will help Du Pont Merck challenge his labs, forcing both companies to make better drugs. It may stimulate his sales force, too. In some cases, Merck and its cousin may sell the same products--under different names--in the same markets. For antitrust reasons, Merck won't be told of Du Pont Merck's selling plans or the prices it will charge. Even in internecine rivalry, says Du Pont Merck CEO Joseph A. Mollica, "we are playing to win."

It can do that because of some unique advantages. Its parents don't expect big profits soon, though the venture will pay its own way. Merck contributed an undisclosed amount of cash, marketing rights to the Parkinson's disease treatment Sinemet and other staple drugs, and joint marketing rights abroad for Proscar, the first drug to treat prostate disease. DuPont threw in its two dozen mostly small drugs, its marketing staff, and 1,500 researchers. This year, Du Pont Merck's sales should top $700 million, making it one of the top 50 drugmakers worldwide.

Both sides are trying to avoid the pitfalls that typically beset jointventures. Many deals disintegrate, says Merck's financial senior vice-president, Francis H. Spiegel Jr., because the partners' expectations change or because of squabbles over profits. To avoid that, top executives of both parents sit on the board. And they've agreed on a "fairness and balance" clause that matches payoffs to each side's contri-butions.

If Du Pont Merck succeeds, it will be a model for more such moves by Merck. Its nine-year-old tie-up with Sweden's AB Astra could blossom in 1993 into a joint venture as large as Du Pont Merck--if four drugs Astra has licensed to Merck take off. And Vagelos says there could be other such deals. In fact, these could be the prescription for making Merck's R&D creative and productive--and more attractive to such top researchers as David Martin.

Before it's here, it's on the Bloomberg Terminal.