As a global research-driven pharmaceutical company, Merck is dedicated to discovering and developing products to address unmet medical needs. An environment that encourages innovation is essential for the discovery of novel medicines that provide true value to patients. The right environment will encourage companies to assume financial risks in researching innovative products and reward them for doing so if they are successful.

Not all environments are conducive to innovation. There are specific factors that promote innovation in medicines. The foundations for favorable environments can be provided by national governments and include sound fiscal and monetary policies, solid legal and regulatory structures, effective intellectual property protection, and a commitment to the principles of free markets. Below are the five enabling conditions that Merck believes support innovation:

• Intellectual Property Protection: Strong patent protection is essential to innovation. Given that it guarantees a firm a period of reward, patent protection provides the research-based pharmaceutical and biotechnology industries with an incentive to invest in research and development.
• Competition-Based Market: A competition-based market provides the opportunity for firms willing to take the risk in developing a new medicine to earn an adequate return on their investment and, more importantly, to fund research for new medicines yet to come. Competition is a key driver in researching and developing new products that provide added value.
• Government Support for Basic Biomedical Research: The government should play an essential role in advancing knowledge in science and medicine. Basic research is often theoretical or exploratory but helps provide a general understanding about disease. Researchers in the pharmaceutical industry learn from the fundamental knowledge uncovered by basic researchers and apply it to their targeted search for new medicines.
• Evidence-Based Regulatory Environment: A regulatory system that is effective, efficient, transparent, and puts patients first supports innovation because firms can rely on thoughtful, scientific review of their marketing applications. This kind of regulatory environment supports innovation by rewarding firms with marketing approval for developing safe and efficacious products.
• Global Business Environment: Free market principles, ethical business practices, tax policies, free trade and other factors that constitute a business environment can impact innovation. Policies that increase the opportunity for firms that innovate to be rewarded for their investments in research and development are essential to medical innovation worldwide.

At Merck, we believe that policies that encourage and reward innovation are important to driving the discovery of new medicines and improving health.