Analysis on Merck: Conflict and change

Merck is one of the biggest pharmaceutical companies in the world today. Although encountered with success, it still faces many problems today while trying to be the market leader competing against its competition. While being research and development driven company, Merck now has to go beyond R&D to stay competitive in the pharmaceutical industry. The main issue that seems to come up is that how far it can progress with the dual challenge of hitting peak annual financial performance while keeping the research pipeline full continued to weigh on senior management.

Through the late 80s to early 90s, Merck was able to boast profits and sales through biochemistry drugs that were seen as breakthrough drugs in this new market. With this sudden boom competitors started to take notice and emulate Merck’s business model. This success also brought up a number of questions within Merck as a company; mainly how was Merck going to keep up with its numbers and keep pumping new drugs into the market. Analysis: The new technologies and law made it easier for companies to market drugs.

FDA allowed the direct to consumer advertising of prescription drugs. Newly developed drugs were put in the market within a matter of months and companies focused more on marketing and advertising their drugs. Smaller companies collaborated or merged with Merck’s competitors to enhance technology, drug discovery and development. Pharmaceutical companies actually doubled their sales force between 1995 and 2001 to 80,000 sales rep. In the early 1990s, the MCOs began taking control and restricting the type, prices and number of drugs on their formularies or approved list.

The MCOs presence and control on pharmaceutical companies led to slow sales and growth. In this business, the duration of the drug development is longer. The value of the drug being evaluated and the length of the FDA application for drug approval take time. For example, of the 5,000 molecules that are discovered, only couple of hundred are investigated, only one enters into the market and only a third becomes a marketable success. A drug development time may take on average over 15 years and expenditure R & D total costs of about $880 million.

The length for and FDA application is at least 100,000 pages, which details the potential drug’s usage, production, formula and labeling. Another issue is too much power is given to scientists in decision-making of candidate drugs. Also there were inadequacies and lack of communication between marketing and research. Merck’s marketing and research needed to realize that the making of the drug is not only the most important part in increasing sales, but it also included a strong advertising campaign that will satisfy the needs of the customers. Actions:

Merck has initiated towards combining functional departments with a core cross-functional structure that focused on strategies and implementation. For instance, Ray Gilmartin established the Worldwide Business Strategy Teams (WBST) in 1995. The WBST, which consisted of 12 or 15 members from the US Human Health, marketing and MRL’s internal group, focused on managing, improving efforts and coordinating therapeutic franchises worldwide. Cross-functional groups can promote resources for category drugs, decide if marketable drug be evaluated in Phase V studies, look at possible impact sales and push for initiatives.

If cross-functional groups are designed and perform correctly, then they will be taken serious from larger organizations such as the MRL. Also, these strategic groups are basically a team of mix participants who are looking to use critical thinking and solve issues in Merck. The formation of cross-functional group will improve Merck’s productivity and sales. One more element that will be beneficial to Merck is the increase emphasis on external relationships and broadening new drug fields with other organizations.

By forming a relationship with a generic drug maker, which have hurt Merck’s sales by creating similar drugs at a cheaper price, Merck would be able to receive some sort of payment from them. In order to do so Merck would first develop the drug, then before bringing it to market, approach a few generic drug makers about the drug and from there enter into an agreement for them to distribute a generic version with Merck receiving some of the royalties. This would benefit both the profitability of Merck as well as create new business relationships.

Merck has entered the generic drug business developing a line of products and managing cared formularities. Merck collaborated with the Worldwide Licensing Group in 2000. Ray Gilmartin then integrated the group within MRL and appointed Dr. Ben Shapiro, a senior MRL employee, as head. In 2001, Merck once again acquired Rosetta Inpharmatics, a leading gene expression and biological analysis organization for $620 million dollars. This opportunity is a must for Merck because other competitors will look at ways to increase their performance and become the top pharmaceutical company in the world.

Merck should focus little more on its core objective which is research and development to areas that have not been exposed enough, like marketing and distribution. It is easy for Merck to stay research driven because that is what the company was founded on, but now that they have all those parts in place they should look to market their products better and form distribution relationships that will get their drugs to the consumer most effectively. By doing so they will develop internally as a company as well as experience growth are sales. Appreciation:

Merck has an effective record and has increased its performance through various features. Merck has greatly achieved success with its long history of breakthrough drugs, many of which became known as blockbuster drugs. The high importance to research and development was a part of organizational culture from the beginning. Gaining point for Merck is the hiring and appointing of top-notched doctors, researchers, and scientists in the Merck Research Labs (MRL).

In 1985, the organization appointed Dr. Edward Scolnick as head of MRL who like his predecessor, Dr. Roy Vagelos, continue to increase MRL profile, access to resources and encouraging researchers to publish their research in science journals. MRL has also caused the organization to become a leader in patent filings. Between 1990 & 1999, the number of patents awarded to Merck has been at least 2,500. Finally, Merck’s drug marketing campaign has led to increased exposure and demand for potential drugs. In the early 1990s, the FDA allowed direct to consumer (DTC) advertising of prescription drugs in newspapers, television and other forms of media.

This was a devastating blow to Merck during the Zocor debacle but to reestablish the name Merck, CEO Ray Gilmartin, developed the Product and Cycle of Time Excellence (PACE) which allowed a better flow of information between research, marketing and manufacturing. In combinations with PACE David Anstice, President of U. S. Human Health for Merck, elevated the marketing organization. He reorganized marketing in the United States into Franchise Business Groups allowing each group to be responsible for their own P&L for Merck products. Ray Gilmartin helped as well to strengthen skills inside marketing.

Merck began strengthening marketing skills and focusing on customer and brand marketing instead of industrial marketing. For example, Gilmartin, with assistance from the marketing firm Monitor Consulting, developed a marketing staff trained in data-driven methodologies and analytical approaches such as in market buyer segmentation. Web-based software for training was also instituted in the PACE approach as a curriculum that trained market staff members to be more professional and responsible. Continuous re-evaluation and thrive for sustaining the market leader position has always given Merck a great competitive advantage.

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