Dear friends of Xavo,

last week you may have heard that drugmaker Merck & Co. said it is shutting down eight manufacturing plants and eight research sites around the world. This is obviously an ongoing restructuring following Merck’s acquisition of Schering-Plough Corp. last November. Merck’s cuts are intended to save the company about $3.5 billion a year starting in 2012 by firing roughly 16,000 jobs worldwide.

Over the next two years, Merck will phase out operations at eight research sites, including one outside Cambridge, Mass. Three others are in the Netherlands, one in Germany, to others are elsewhere in Europe and one is in Canada.

Like many large pharmaceutical companies Merck has been pouring billions of dollars a year into research, yet producing few innovative products and even seeing promising experimental drugs rejected by government regulators. This led it to buy Schering-Plough, which has one of the industry’s best portfolios of experimental drugs and also gave Merck a new consumer health business and expertise in biologic drugs and women’s health.

I wonder why is Merck risking a brain drain in research & development? Merck came obviously to the conclusion that they have to change their R&D strategy fundamentally. I believe that Merck now is aiming to create a much more flexible R&D organization that fosters internal innovation and external research collaborations and efficiently pushes drugs through testing to approval.

Take the example: Merck Montreal. Despite the closure of the Montreal research centre, Merck said it intends to invest $100 million in research and development in Quebec over the next five years. The money will be spent with external partners, including universities, biotech companies, clinical research in hospitals and private clinical research.

OK, now I got it. Merck knows that they have to change their R&D business model from an inside-outside to an out-side inside. The story is not primarily about cutting R&D costs, it is about strengthening external collaboration in a changed and globalized business environment.

Merck doesn’t risk a research and development brain drain. Their executives know that the most important elements of their enterprise are the seeds of innovation, which equate to talented people and their ideas. Human beings - with their talent and energy, creativity and insights - are the most important resource, especially in R&D.

These Merck news are bad news for the affected employees. But many of the laid-off guys from research & development will find new job opportunities in the rising number of external R&D facilities very soon. There is no doubt about it that the Merck scientists are in a much better situation than their counterparts in manufacturing who are facing very hard times.

On the other hand, these Merck news are good news for Xavo. We are supporting drug discovery scientists with best-in-class IT solutions which help scientists to become more productive and more successful. We enable pharma enterprises to foster innovation and enable external collaboration by the seamless integration of laboratory workflows with the growing number of internal and external facilities.

Our cutting-edge “ReFocus on Science” strategy allows scientists to synchronize all of their laboratory activities, workflows and data. Please read more about “ReFocus on Science“ which supports pharmaceutical enterprises by creating a new research culture work according to the Merck example.

Times are changing. Enterprises have to cope with the changes. Otherwise they will cease to exist. That is why Merck decided for change last week.

Yours truly,

Detlef Riedel

Xavo/CEO

P.S. „Everything is gonna be all right!