Strategic management - Merck.

1. Section B Group 3 -
Ronak Parekh (1302-125)
Rohit Mittal (1302-124)
Konark Jain (1302-076)
Ritika Chaturvedi (1302-122)
Kirti Shankar (1302-074)
K Sainath (1302-075)
Pragati Garg (1302-101)
Strategy Analysis

2. Q1) Interpret the pattern of actions taken by company in last 10 years. Use Figure to
classify these actions.
I. Actions to enter new product or geographic markets or to exit existing ones
In 2003 Merck submitted New Drug Applications for new product Vytorin, the
ezetimibe/simvastatin combination, and Arcoxia to the U.S. Food and Drug Administration
(FDA) for approval.
In the second half of 2004, they started preparing 4 new vaccines – a vaccine for
simultaneous immunization against chickenpox, measles, mumps and rubella; and were
planning to submit application for ProQuad to the FDA.
In 2005, they focussed on innovative areas namely liquid crystals and cancer drug Erbitux.
They established new production facility in Taiwan and by doing this they expanded their
capabilities to one of the most important countries for the production of liquid crystal
displays. They sold off their Electronic Chemicals Business to BASF, moving ahead with the
corporate strategy of “focussed diversification.” They were also planning to file applications
for 3 new vaccines that were promising.

3. In 2006, they disinvested from their generics division to focus on pharmaceutical and chemical division. Sales in New Zealand also declined. Due to the very harsh government- imposed tender environment in this country’s generic drug market, they decided to close production site at the end of 2007.
In 2007, a new formulation of Rebif drug – a further development of the successful multiple sclerosis therapy – was approved in the European Union, and innovative growth hormone injection device EasyPod was approved by U.S Food and Drug Administration. Merck Serono submitted an application to the European Medicines Agency (EMEA) for the marketing authorization of sapropterin (formerly known as Phenoptin) for the oral treatment of hyperphenylalaninemia (HPA) due to phenylketonuria or tetrahydrobiopterin deficiency. In December, Merck Serono’s partner in the development of sapropterin, BioMarin, received FDA approval of sapropterin for use in the United States.
In 2008, Merck researchers started working on OLED (organic light-emitting diodes), to strengthen their market in innovative displays. They were used in mobile phones, MP3 players and digital picture frames, and had been introduced in televisions. Merck researchers were active in the growth market of photovoltaics and were developing new energy-saving lighting materials. In photovoltaics, they were focusing on the development of materials for printing technologies and for the production of organic solar cells. By acquiring the Swedish company SeQuant, Merck rounded off the chromatography portfolio. SeQuant specialized in the development of products for chromatography, namely the separation of polar chemical compounds.
In 2009 they faced a few difficulties. They had to withdraw Raptiva from the market. They gained a stronghold in the new Effect pigments technology by acquiring Taizhu in China.
In 2010, a future-oriented cooperation agreement with Sanofi-Aventis was announced on December 17. The agreement involved a global research and development collaboration in oncology pertaining to the treatment of cancer.
II. Action to gain sales and market share with lower prices based on lower costs
In 2003, Merck eliminated 4,400 positions worldwide as part of their effort to fundamentally lower their cost structure and improve the efficiency of the operations. They further reduced the size of the workforce in order to reduce the cost of doing business without sacrificing research, manufacturing quality, or their support for our sales and marketing efforts. They further reduced costs by reducing inventories, streamlining the supply chain, making optimal use of their manufacturing capacity, and reducing the costs of capital projects.
In 2004, by enhancing Merck’s productivity, efficiency and effectiveness reducing cost of production re-balancing of supply chains to make maximum use of their flexible manufacturing plants to handle new products. This flexibility would enable them to save $300 million in capital expenditure and reduce the labor requirement by 300.
In 2005, they lowered the purchasing costs of production material for Darmstadt and Gernsheim, their largest production sites, by € 25 million, or around 7 %, in comparison with

4. the previous year. One of the ways in which they realized these savings was by making purchases in China, where they established a presence in January 2005 by opening office in Shanghai.
In 2006, they reduced the purchasing costs of production material by an average of 6.4% for their entire portfolio. Price increases for crude oil feedstock and materials traded on metal exchanges were offset by high savings for refined specialty raw materials and finished products. They purchased raw materials and supplies globally and succeeded in achieving price reductions in both Europe and Asia.
In 2007, changes in reporting structure lowered the marketing and selling expenses by 8 million euros.
In 2009, they temporarily shut down production units and introduced reduced working hours for the first time to offset low sales revenue.
In 2011, they lowered cost by implementing leaner management structure. Further, R&D spend was slightly lowered than in 2010.
In 2012, Merck simplified their organizational structures, accelerated processes and thus started to lower costs considerably. The planned closure of the Merck Serono site in Geneva and the framework agreement with the employee representatives in Germany were just two steps among many. Nearly all countries and areas of the Group were and still are involved in this process, with which they are freeing up resources for future growth.
III. Actions to capture emerging market opportunities and defend against external threats to the company’s business prospects
In 2003, in order to capture emerging market opportunities and defend against external threats to the company’s business prospects, Merck increased ownership of Tokyo-based Banyu Pharmaceutical Co. Ltd. from 51 percent to 99.4 percent, through two tender offers.
In 2004, Merck was also working with governments in many emerging markets in Eastern Europe, Latin America and Asia to encourage them to increase their investments in health and thereby improve their citizens’ access to medicines.
In 2005, with the acquisition of Avecia of Manchester, UK, and Covion Organic Semiconductors of Frankfurt, Germany, Merck expands its research activities in the field of liquid crystals to include organic light-emitting diode (OLED) materials technology. This way they captured emerging market opportunities. Further, in order to expand access to customers in the United States, Merck establishes its own generic drug company in the world’s largest pharmaceutical market.
In 2006, to cover risks in connection with claims, provisions for potential damages and legal fees were increased by € 80 million. In Latin America, they generated a 14% increase in sales to € 34 million and expanded their position particularly in Brazil (37%) and Mexico (10%).

5. In April 2006, fully consolidated Japanese company Merck Hoei Ltd. was acquired by Merck. Further, they acquired multiple European companies - Danish company Survac ApS, Spanish firm Prasfarma Oncológicos S.L. and French company Société de Participation Pharmaceutique S.A.S to strengthen their position in Europe.
In 2007, revenues from the US market decreased significantly because of recession which let to low GDP. But this was offset by increase in revenues from emerging markets such as China which enjoyed GDP increase of 11.5%.
In 2009, they received negative opinion from the European Medicines Agency regarding the use of Erbitux in the treatment of lung cancer. They also received a refuse to file letter in response to our regulatory submission of cladribine tablets in the US. Further, negative effects in currency affected their sales in Europe as well as many other countries.
In 2010, Merck strongly expanded its presence in China. Around 2,000 employees contributed to a sales increase of more than 30%. In Beijing, they set up an R&D center in order to coordinate clinical trials locally.
In 2011 external environment had changed. Attempting to fulfil the requirements of the European Medicines Agency and the FDA would have necessitated a new, multi-year clinical trial program. In Australia and Russia, where cladribine tablets were registered under the brand name Movectro, we discontinued market supply of the product in close coordination with the authorities. Increasingly restrictive requirements were imposed in the pharmaceutical environment in terms of drug pricing, reimbursement and approval, a trend that can be seen in many countries. These requirements can negatively impact the profitability of our products and jeopardize the success of market launches and new approvals.
A few general problems which were valid for any year were: The destabilization of political systems, possible erection of trade barriers and monetary policy changes which can lead to declines in sales in certain countries and regions. There is a risk that the regulatory authorities either do not grant or delay approval, which can have an impact on earnings.
In 2012, Merck struck a deal with Dr. Reddy Laboratory, to gain further momentum in the emerging markets.
IV. Actions and approaches used in managing R&D, production, sales and marketing, finance, and other key activities
 Invest in discovery and development of novel medicines.
 Optimize supply chain so as to make efficient use of their flexible manufacturing plants to handle new products.
 Integrate the internal talents with that of external manufacturers who provide Merck with specialized skills and manufacturing services as a supply strategy.

6.  Recognize the HR department that best utilizes the human capital.
 Use inputs from customers in the biotech innovation.
V. Actions to strengthen competitiveness via strategic alliances and collaborative partnerships
 Partnership with Dr. Reddy’s on biosimilars which helped in reduction of R&D costs.
 Partnership with Bill & Melinda Gates Foundation and the government of Bostwana in the field of HIV.
VI. Actions to strengthen market standing and competitiveness by acquiring or merging with other companies
 Acquired Solvent Innovation GmbH of Cologne, Germany so as to strengthened research in the field of ionic liquids for the Performance and Life Science Chemicals division.
 Acquired Litec-LLL GmbH of Greifswald, Germany which produces and markets ortho-silicate lightning materials. It thus got into business of light sources for LEDs.
 Acquired Millipore to become a leader in life science industry.
 Acquired Serono which helped them a leading global manufacturer of biopharmaceuticals.
VII. Actions to gain sales and market share via more performance features, more appealing design, better quality or customer service, wider product selection or such actions.
Merck has a strategy of offering novel medicines that are competitively priced and has positioned its products well in the market. Some of the notable developments to gain the sales and market share are:
1) 2003- Two major research studies driving sales- LIFE and RENAAL. Life demonstrated that Cozaar reduces combined risk and cardiovascular death. RENAAL showed drug reduces the risk of progressing end renal disease. Zetia launched which was used for the treatment of high cholesterol in five European markets.
2) 2004- A new program launched to help Medicare beneficiaries. Through that Merck provided discounts on medicines to 49 drug discount card programs established for beneficiaries. These beneficiaries provided medicines to the people at almost no cost.

7. 3) 2006- Innovative Femibion with Metafolin successfully launched in Germany. The new combination prevents congenital heart defects.
4) 2007- Pergoveris launched-The first biotech drug based on the combination of suvbstances in the subcutaneous region. Marketing authorization submitted to EMEA for marketing of sapropetin for the oral treatment of HPA.
5) 2008-Metaformin recommended for Type-2 disease as well.
6) 2011-In research and development side the focus was shifted to rheumatology. Further expansion in this field. Standard pigment production shifted from Onahama in Japan to Gernsheim in Germany so that we could expand capacities for Xyrallic ® pigment production at the Japanese site having high demand.
VIII. Actions to upgrade build or acquire competitively important resources and capabilities
Merck achieves its competitive advantage by staying true to its strategic vision. 1) The merger of Merck with SP internal personnel restructuring, andethical corporate initiatives are the sources of Merck's advantages.
2) Talented Researchers combined with technological advances and scientific studies in the past decade.
3) Spending billions of dollars each year to identify and develop medicines and vaccines that can help people around the world.
IX. Action to strengthen the firm’s bargaining position with suppliers, distributors, and others.
Suppliers:
It is Merck policy to provide maximum practical opportunity to diverse suppliers in order to provide goods and services to the company as a part of their corporate procurement process. The use of diverse suppliers is an integral part of their purchasing procedures. Merck recognizes that supplier diversity creates a competitive advantage for their company and hence positively impacts the global community. Merck believes that the success of the company and society depends on enabling diverse businesses to share and grow in the global market.
Merck has a diverse supplier base which helps it understand its customers’ needs better.
Distributors and Others: Merck believes that Direct-to-Consumer (DTC) advertising can be an important and helpful way to inform patients about diseases that may be relevant to them and therapeutic options that they may want to discuss with their physician.

8. Print materials, telephone, websites and other channels are also utilized to provide more inside information to patients.
In 2008, Merck’s strengthened its policy on DTC advertising, including adopting a minimum six-month time period following the approval of a new product before the launch of DTC broadcast advertising in the United States
Merck’s licensing team works with partners to advance their science through drug discovery and development collaborations and licensing agreements that are mutually beneficial.
Merck’s Commercial Partnerships team pursues business opportunities with partners to jointly deliver their products and ours to the marketplace.
In June 2009, AstraZeneca and Merck entered into an agreement to conduct joint phase 1 clinical trials of their respective cancer drugs — AstraZeneca's MEK inhibitor AZD6244 (ARRY-886) and Merck's AKT inhibitor MK-2206.
Q2) How has company changed its vision or direction during last 10 years?
The changes done by the company during the last 10 years were:
 First they were no acquisitions but then they went for acquisitions.
 First they were only in pharma but in 2005 they entered the chemical industry also.
 Several important changes were made to the executive management of the Merck group.
 Reporting of customer rebates was changed in order to improvise accounting practices within the group.
 They emerged into Latin America, Asia, Taiwan and Russia.
 Diversification became there new way of doing the business.
 This is just what people working in R&D at Merck don't want to see. According to Fierce Pharma, a prominent analyst is urging the company to get its finances in line with its competitors by cutting R&D.
 The company would be focusing on speed so as to keep cash that can be utilized in promising experimental programs. Also, it would try to either buy or license medicines produced by other companies which it has not be able to implement successfully in the past.

9. Q3) Identify the drivers from the external environment that might have triggered changes in the strategies.
One of the major factors in driving the change were the competitors GlaxoSmithKline and Pfizer. Merck’s major competitors were Johnson & Johnson, Pfizer, Novartis, GlaxoSmithKline as well as other smaller companies. Merck is the third largest manufacturer of human healthcare pharmaceuticals. In 2000, Fosamax got FDA approval for use as male osteoporosis treatment. In 2003, Merck spun off Medco Health Solutions to shareholders in a tax-free transaction. Medco accounted for 58% of Merck’s revenues in 2002, but only for a small percentage of profits. In 2009, Merck and Schering-Plough combine to create the world’s second-largest pharmaceutical company by market share.
There were high Layoffs in response to loss of revenues. There was a product liability of $750 million for Vioxx a highest R&D with historically increasing expenses. There was a low innovation in response to weak economy. Skilled pharmaceutical representatives were given high salaries. Revenue dropped at $347 million. In addition to these it had a weak core portfolio, unstable Growth rate, aggressive marketing open to scrutiny by government agencies and high institutional Ownership (IO).Merck lost patent protection and the price of its prescription drugs increased which was reducing Medicaid drug benefits. Merck was unable to identify risks due to lack of time and study of long term effects. Merck had extensive research and development costs. In the midst of everything industry was marked by high competitive advances. Driving out competitors with low prices was one of its strategies. It was trying to penetrate emerging international markets of vaccines and biologics through diversification into biologics, diabetes & infectious market segments. Due to the consolidation of major competitors and the new competitions from China has resulted in major changes in the effect pigments market. Therefore, Merck has decided to reposition themselves by developing high quality products and by entering new niche markets. Niche markets include effect pigments for food and pharmaceuticals. Although the competition is intense, by taking these steps, they expect to gain sustainable growth.