DISCOVERING THE FUTURE: R&D AT MERCK

OVERVIEW AND STRATEGIC CHANGE

Long history of R&D Merck Research Laboratories: An unique entity in itself Robust financial performance: Stock price had risen over 25%: An all time high of $91.99 per share. Strong market position: Viox, Zocor, Singular and others Right time for strategic change and investment; CEOs decision to invest and act

THE FUTURE STRATEGY

Basic dilemma/decision: Merge, collaborate, or Isolate? Traditional focus on scientific isolation and hiring best talent than mergers and acquisitions Smaller and more focused development community Rational: Exposure and research ideas are fairly available to all hence talent maters

COST OF R&D

Bloated cost of companies which followed the mergers path

M&A

integration costs Inflated staff Duality of work

Less than desirable ratios of

1.

2.

Profit to investment Sales to R&D costs

But..

THE NEW TREND

Emergence of a consolidation trend-Merck not playing the game consolidating not only to reduce expenditures but to advance the science Focus on particular processes in merger environment: Case of Eli Lilly

COLLABORATION AT MERCK

Not total isolation: Belief in collaboration with outside firms. Great success too.
1/3rd

of successful product base came from 3rd party collaboration

Limited partnering paradigm Funding issues: Competition between internal and external projects Control tussle: MRL and Corporate head quarters Partnering only during early stages: More profitable

ADDITIONAL STRATEGIC ISSUES

Influencing decision for growth and survivability for next 10 years:

Keep mergers and acquisitions to a minimum Focus R&D Spending on Blockbuster drugs for emerging markets Restrict Collaborative efforts to focused, small ventures ran and managed from MRL

SYMPTOMS OF BUSINESS ISSUES

Not agile in relation to smaller firms Organizational structure very restrictive due to the parent companies size Not open to widespread exploration (outsourcing)

Not resilient, cannot absorb VIOX issue soon to come

Not enough partners and internal competitors Inexperience employees (new collage hires) Building in house and not buying solutions Not expanded enough, closed culture Authority Vs. Responsibility: battles between MRL and Corporate for power Narrow Channels, need to embrace more collaborative opportunities Failures of acceptance: organizational issues from a division to another Weakening Pipeline: Generic Threats will occur but too far away to motivate

SWOT ANALYSIS
Strong presence in blockbuster market, low competition to date Financial strength Strong brand value Scientific pedigree

STRENGTH

Few novel products Underperformance of pharmaceutical process (too many control issues, not flexible in collaboration efforts) Huge company moves too slow

WEAKNESS

OPPORTUNITIES
Smooth Acquisitions & Integrations Growing global market Many small firms to collaborate with

Other firms Mergers and acquisitions best opportunities already taken Increased competition due to other firms perfecting M&A as well as Collaboration processes Generic competition to mainstay drugs

THREATS

RECOMMENDATIONS

Change their approach towards M&A (Ex J&J) Collaborative investment Vs Large size (Ex pfizer, Avantis) Change this:
o

How Merck is doing:

Small internal labs Aristocratic approach to collaboration Developed, Scaled, Productized, marketed, sold by merck

How industry is doing: (Pfizer, Avantis)

New discoveries in smaller co Major drugs extracted Developed, Scaled, Productized, marketed, sold by larger firms

THANK YOU

Prepared by
Maulik Parekh 34242 Jyoti Rajguru 34192 Ravi Garlapati 34113 Samik Sarkar 34252