It costs drug companies about $800 million to develop a new drug that may not even be approved by the regulators. The rising costs of drug development coupled with a stagnant pipeline has urged Merck to buy Schering-Plough for an impressive $41.1 billion in cash and stock, making them the second largest drug company in the world after Pfizer.

Merck expects to save about $3.5 billion annually beyond 2011 and double the number of potential medicines in late development to a total of 18 drugs.

Large pharmaceutical companies are combing the market and buying up their smaller counterparts, which sometimes have more promising medicines in the pipeline.  A few months ago, Pfizer bought Wyeth for about $62 billion.

We can expect to see more mergers and acquisitions in the pharmaceutical sector in the near future to fulfill the need for more innovative drugs in the face of increasing development costs and a future that may bring declining revenues for drug makers as payers (insurance companies, the government) tighten their belts.

Filed under: Pharma/Biotech