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Merck - strategic analysis

Merck - strategic analysis

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Published by: ariel_lee2010 on Jan 16, 2011
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05/28/2013

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Ariel Lee
Midterm Assignment10/28/10Mgmt 780Professor Dali Ma
 
Executive Summary
In 1950, George W. Merck eloquently explained that Merck achieves its competitiveadvantage by staying true to its strategic vision: "We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they havenever failed to appear." Today, the pharmaceutical industry as a whole faces the challenge of developing fewer, high-revenue blockbuster drugs while simultaneously incurring unsustainablyhigh R&D costs. Merck responded by merging to improve its drug pipeline, reorganizing toreduce costs, and donating medicines to establish ties with developing countries. Thus, Merck'skey to survival amongst its industry peers is its ability to generate above-average returns by producing quality products and services that improve both human and animal health.
Company Background
Merck & Co., Inc., headquarted in Whitehouse Station, NJ, is the third largest global pharmaceutical company by market capitalization as of 2009. Founded in the United Statesduring 1891 by George W. Merck, the firm is renowned not only for its medications, but also for its medical manuals, innovative chemical syntheses, and cutting-edge research. Merck isorganized into 3 major divisions – Pharmaceutical (including bone/respiratory/immunology,cardiovascular, diabetes, vaccines, infectious disease, oncology, neuroscience/opthamology,mature brands, and women's health), Consumer Health (OTC drugs, foot care, sun care), andAnimal (livestock, poultry, aquaculture, and companion). Following the 2009 merger withSchering-Plough, the "new" Merck now consists of roughly 100,000 employees worldwide.
 
Analysis of External Environment
Overall, barriers to entry remain extremely high for new entrants to the pharmaceuticalindustry. Newcomers typically join the market as smaller biotechnology firms without a global presence that produce limited niche drugs or technology services; such firms tend to co-markettheir products with pharmaceutical partners or are acquired by other large corporations.Skyrocketing R&D costs, high likelihood of new drug failure, significant government regulation, patent expirations and disputes, stagnant pipelines, and intense generic competition thatadversely affect the market leaders are sufficiently high to prevent entry altogether or curtailR&D expenditures. Finally, the Obama health care reform creates further uncertainty aboutfuture regulations and revenue restrictions that may impact the drug industry.Recently, the trend of the pharmaceutical industry has been to address Wall Street'sconcerns through mergers, restructuring, and joint ventures. Over the past decade, 1,345 mergersand acquisitions totaling over $694 billion were announced; the high-profile Pfizer-Wyeth,Abbott-Solvay, and Merck-Schering Plough conglomerations occurred in 2009 alone.Finally, Merck also faces intellectual research competition from non-profit, government,and academic institutions, such as the NIH and various university research programs. However,such organizations are not product driven and frequently collaborate with pharmaceuticalcorporations.
Analysis of Internal Environment
Pharmaceutical giants have both the reputation and resources necessary to attract theworld's brightest scientists and thus maintain the capacity for innovation. For instance, employeesalaries overall have always been dramatically higher than those of non-pharmaceutical

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