Presented To:

Prof. G Ahmad Rana

Presented By:• Rana Arslan Sarwar • Hashim Rana• Zeeshan Tauqeer• Mugheeth Khan• Syed Faraz Ali• Adeel Tariq• Khurram Tariq

Prophet Muhammad (PBUH)

" Allah Never Inflicts A Disease Without Providing A Cure ..."

Merck Pharmaceutical Co.

Introduction

• Merck is an American legend and icon of a firm.• Global pharmaceutical co.• Founded in 1891.• Headquarters: Whitehouse Station, New Jersey, United States.• Core Business is Discovery, development, manufacture and

marketing of products to improve Human and animal health.• It sells its products through drug wholesalers, retailers,

hospitals etc.• Merck is a global pharmaceutical enterprise with around

40,000 employees in 64 countries.

Richard T. Clark, President & CEO

History

Slogan

“We've done great things in the past.

Today, we're doing great

things for the future.”

History

1891: Merck & Co. started it in United States.

1899: The first Merck Manual was published as a guide to physicians.• Now in 17

languages.

1944: A collaboration b/w Merck & Rutgers Uni. leads to discovery of Streptomycin.

History

1963: Merck introduced first measles vaccine

1989: Over-the-counter medication joint venture is created with Johnson & Johnson.

1990: Merck acquired several companies.

1991: Merck became market leader in prescription drugs with 9 billion sales & 5% market share.

History 1990s, Merck has to pull off several products from the market because of litigation.• i.e. Redux, Pondimin • $ 675 million to cover its legal defense up

till 2005.

History

2002: Merck obtained FDA approval for1st cholesterol reducing product Zetia.

2004:A lawsuit was filed by the users of Vioxx for false advertisement.

Sep. 30, 2004: Merck withdrew Vioxx.

Organizational Hierarchy

Richard.T.ClarkPresident, CEO and

DirectorDavid

Anstice

president human health,

Asia Pacific

Kenneth Frazier

EVP and Genral Council

Marriam graddick-

wiersenior vice

president human

resources

Judy lewent

EVP and CFO

Peter loescher

president global human health

J. chris scaletSVP

global process

and service,

CIO

Willie diese

president

manufacturing

division

Vaccine Segment

Mission Statement

Mission Statement

The mission of Merck is to provide society with superior products and services by developing innovation and

solutions that improve the quality of life and satisfy the customer’s needs, and to provide employees with

meaningful work and advancement opportunities, and investors with a superior rate of return.

Goals/Objectives

• EMPLOYEE-RELATED GOALS:• Implement or improve the Talent Management Process to

identify and promote talented employees.• Increase the proportion of women in senior management

positions

• Environmental goals• Achieve an ISO 14001 Group certificate by the end of 2010.• Increase waste recycling ratio (recycled waste: total waste)

by20% to at least 57% by 2010. COMMUNITY GOALS:• Combat drug counterfeiting by supplying the

compact mobile laboratory GPHF-Minilab®.

PESTLE analysis

POLITICAL:• Political instability and a deteriorating law and order

situation in the country are other concerns. The drug manufacturers find it extremely difficult to cope with the situation.

ECONOMIC:• Almost 95% of raw materials used by the pharmaceutical

industry of Pakistan are imported from different parts of the world. The rapid devaluation of the Pakistan Rupee against major currencies of the world, (e.g. 60% against USD) has made the imported raw materials much costlier.

Social• With its large population, growing economy and increasing

health awareness among the population, Pakistan should be regarded as a significant emerging market for pharmaceutical firms

PESTLE ANALYSIS:

TECHNOLOGICAL:• Technologically this industry is facing

some problems like lake of electricity, repair of latest equipments and research environments.

LAW:• In pharmaceutical industry the Intellectual

Property Protection is a major concern regarding law.

PORTER’S 5 FORCES MODEL:

Rivalry among existing firms

Threat of substitutes

Bargaining power of

customers

Threat of new entrants

Bargaining power of suppliers

• Rivalry among Existing Firms:• the rivalry among the existing firms is high

and these firms are one to one competing with each other in every area.

• Threat of new entrants• Huge investment, a large number of competitors,

political instability, government regulations, laws and a huge amount for research and development are some of many threats for a new entrant in pharmaceutical industry so the threat of new entrants is low in this industry

• Threat of substitutes:• patents for the new medicine formulas that this

medicine will be produced only by a particular company having the patent. So in the case of many medicines it is low and as a whole It is moderate.

• Bargaining power of customers• Bargaining power is low because customers are

not very aware of medicines and only use the particular medicine prescribed by the doctors.

• Bargaining power of suppliers• As in Pakistan about 95% of raw material for the

medicines is imported from countries such as china, India, Germany, Japan, United Kingdom and Netherlands. Many companies started producing it locally so the bargaining power of supplier is low as there a large number of suppliers available in the market.

Strategy Formulation Framework

The Input Stage

Stage 1

The Matching Stage

Stage 2

The Decision Stage

Stage 3

Stage 1: The Input Stage

Internal Factor Evaluation

• Matrix (IFE)

External Factor Evaluation

• Matrix (EFE)

Internal Factor Evaluation Matrix

Internal Factor Evaluation Matrix

Key Internal FactorsWeight

Rating

Weighted Score

Strengths

1. Strong R & D. 2. Highly Experienced Top Management having a

wealth of knowledge. .3. Goodwill as CSR.4. New Products are very successful.5. Regular Innovation -1st Mover Advantage.

.20

.10

.10

.10

.05

44

433

.80

.40

.40

.30

.15

Weaknesses

1. Dissatisfied employees & shareholders.2. Expensive medicines because of

advertisement expenses.3. Revenue is dropped by 50% in 2003.4. Lack of Product Diversity.

.15

.15

.10

.05

13

33

.15

.45

.30

.15

Total 1.00 3.10

External Factor Evaluation Matrix

External Factor Evaluation Matrix

Key External Factors Weight RatingWeighted Score

Opportunities

1. Increase in Aging Population.2. Global expansion.3. High Growth Rate Industry (8.4% rate).4. PhRMA offered voluntary advertisement.

.20

.20

.05

.10

3232

.60

.40

.15

.20

Threats

1. Litigation & investigation Issues. 2. Competitors.3. Changing Govt. regulation.4. Patent Expiry of medicines.

.15

.15

.10

.05

4333

.60

.45

.30

.15

Total 1.00 2.85

Competitive Profile Matrix (CPM)

Competitive Profile Matrix (CPM)

Merck Co. Pfizer Inc. J & J Inc.

Critical Success Factor Weight RatingW.

ScoreRating

W. Score

RatingW.

Score

1. Advertisement2. R & D3. Management Experience 4. Litigation & Investigation 5. Market Share 6. Goodwill 7. Financial Position 8. Product Diversity

.15

.15

.10

.10

.15

.10

.12

.13

44 4 2 2 3 3 2

.60

.60

.40

.20

.30

.30

.36

.26

3 3 3 4 4 4 4 3

.45

.45

.30

.40

.60

.40

.48

.39

3 2 3 4 3 4 3 3

.45

.30

.30

.40

.45

.40

.36

.39

Total 1.00 2.87 3.47 3.05

Stage 2: The Matching Stage

The Matching

Stage

CSR of Merck Co:

• Merck proactively promote the public interest by encouraging :– Community growth &

Development,– Voluntarily eliminating

practices that harm.• Nearly $ 26 million spent:

– Tsunami in in southeast asia, 26th Dec. 2004.

– Earthquake in Pakistan 8th oct 2005.

http://www.duke.edu/web/soc142/team2/images/merck2.jpg

SWOT Matrix

SWOT Matrix

Strengths-----s Strong R & D. (S1) Highly Experienced Top

Management Having A Wealth Of Knowledge. (S2)

Regular Innovation -1st Mover Advantage. (S3)

Goodwill Is Reduced (S4)

Weakness ----W Dissatisfied Employees &

Shareholders. (W1) Expensive Medicines Because

Of Advertisement Expenses. (W2).

Net Income Is 1 Billion Less In 2004 Than In 2003. (W4)

Opportunities----o Phrma Offered Voluntary

Advertisement. (O1) Increase In Aging Population. (O2) Joint Ventures With Pfizer & J & J.

(O3) High Growth Rate Industry (8.4%

Rate). (O4)

SO Strategies----so

Through R & D, Merck Can Get More Market Share. (S1, O4).

Experienced Management can attract competitors for Joint ventures.(S2,S4, O3)

Through Innovation, Merck Can Get More Market Share. (S3, O4).

WO Strategies-----s

Merck Co. Can Reduce Its Expenses By Using Phrma. (O1, W2).

Merck Can Increase Its Goodwill Through Joint Ventures With J & J.(O3,w3).

Threats------t Litigation & Investigation

Issues. (T1) Competitors. (T2) Local Competitors. (T3) Patent Expiry of medicines.(T4)

ST Strategies----s

New CEO Should Handle Litigation Issues With His Experience. (S1, T1).

Strong R & D Can Be Used To Compete With Competitors. (S1, T1,2).

WT Strengths-----s

Merck Can Make Short & Long-term Agreements With Its Competitors To Make Its Employees & Shares Satisfied. (W1,t2,3).

Merck Can Stop Producing Risky Products Like Vioxx Etc.

SPACE MATRIX:Internal Strategic position External strategic position

Financial strengths(FS) Y

Environmental Stability(ES) Y’

ROI +4 Leverage +3 Liquidity +3 Working capital +4 Cash flow +4 Inventory turnover +2 Earnings per share +5 Price earnings ratio +4

Technological changes -3 Rate of inflation -5 Demand variability -2 Price range of competing products -2 Barriers to entry into market -2 Competitive pressure -3 Ease of exit from market -2 Cash elasticity of demand -4 Risk involved in business -2 Average -2.77

Competitive Advantage(CA) X’

Industry Strength(IS) X

Market share -3 Product quality -2 Product life cycle -3 Customer loyalty -4 Competition’s capacity utilization -2 Technological know-how -2 Control over suppliers and distributors -2

Average -2.86

Growth potential +5 Profit potential +5 Financial stability +4 Technological know-how +3 Resource utilization +3 Ease of entry into market +2 Productivity, capacity utilization +2 Average 3.43

Graph

•

As 0.855 and 0.57 lay in the aggressive quadrant of space matrix graph so the firm’s strategies will be aggressive .e.g. Market development, market penetration, product development and diversification

IE Matrix

IE Matrix

I II III

IV V VI

VII VIII XI

IFE Score4.0 3.0 2.0 1.0

EFE

Tota

l W. S

core

1.0

2

.0

3.0

4.

0

BCG Matrix

BCG Matrix

SeronoSerono

Consumer health careConsumer health care

BCG matrix(Pakistan)

• Sangobion• Concor• Glucophage• Evion

• Buscopan Plus • Neuromet

Wintogeno

BCG matrix(Pakistan)

ErbituxFlexagelNasvin

Diabionsaizen

Zetia

The Grand Strategy Matrix

Serono• Horizontal Integration• Market Penetration• Market Development• Product Development

The Grand Strategy Matrix

Weak

Competitive

Position

StrongCompetitive

Position

Rapid Market Growth

Slow Market Growth

Consumer Health Care

• Horizontal Integration

• Market Penetration• Divestiture• Liquidation

III IV

II I

Stage 3: The Decision Stage

The Decision Stage

Stage 3: The Decision

Stage• Quantitative

Strategic Planning Matrix (QSPM)

Quantitative Strategic Planning Matrix (QSPM)

Joint Ventures with J&J.

Restructuring for reducing costs.

Key Factors Weight AS TAS AS TASOpportunities

1. Increase in Aging Population.2. Global expansion.3. High Growth Rate Industry (8.4% rate).4. PhRMA offered voluntary advertisement.

.20

.20

.05

.10

3441

.60

.80

.20

.10

1224

.20

.40

.10

.40

Threats 1. Litigation & investigation Issues. 2. Competitors.3. Changing Govt. regulation.4. Patent Expiry of medicines.

.15

.15

.10

.05

-321

.45

.20

.05

-113

.15

.10

.15

Strengths1. Strong R & D. 2. Highly Experienced Top Management having a wealth of knowledge. 3. Regular Innovation -1st Mover Advantage. 4. New Products are very successful.5. Goodwill as a CSR.

.20

.10

.05

.05

.15

43341

.80

.30

.15

.20

.15

33331

.60

.30

.15

.15

.15

Weaknesses

1. Dissatisfied employees & shareholders.2. Expensive medicines because of advertisement expenses.3. Revenue is dropped by 50% in 2003.4. Lack of Product Diversity.

.15

.15

.10

.05

1122

.15

.15

.20

.10

1412

.15

.60

.10

.10

TOTAL 4.60 3.80

QSPM of Merck Co.

Core competencies analysis

• Merck’s core competencies are innovative strength, fast and efficient market penetration, high-quality products and processes, customer focus, excellent command of logistic processes and superior service.

• It has become the first pharmaceutical company to export medicines to Afghanistan after the establishment of the new government in that country.

• Highly Experienced Top Management having a wealth of knowledge.

• Producing soft gelatin in Pakistan. • Goodwill in Corporate Social Responsibility. • 1st Cholesterol Lowering Drug. (Zetu)

CORPORATE CULTURE

• Merck having a corporate culture that creates trust and makes innovation possible, a strong customer focus, responsible handling of natural resources, and social commitment have always been the keys to Merck’s success.

• In April 2007, the Executive Board enacted the Merck Social Charter. This is binding on the entire Merck Group. It reinforces our claim to treat all employees fairly and in compliance with local laws and regulations. In the following areas, we have committed ourselves to certain standards that apply to all our sites worldwide:

• Wages and salaries• Working hours• Freedom of association• Non-discrimination and equal opportunity• No child labor• No forced labor• Prevention of abuse and harassment• Prevention of bribery and corruption

• Our success is based on courage, achievement, responsibility, respect, integrity, and transparency. These values determine our actions in our daily dealing with customers and business partners as well as in our teamwork and our collaboration with each other." By believing in Courage, achievement, responsibility, respect, integrity, and transparency

STRATEGIES UNDERTAKEN AT THE

• Corporate level• Each year, typically in the summer, senior top management

set aside a specific period to develop, discuss and refine the Company’s long-range operating plan and overall corporate strategy. In the fall, the Board typically reviews the Company’s overall annual performance and considers the following year’s operating budget and capital plan.

• BUSINESS UNIT LEVEL• To keep in touch with employee perspectives about our

culture, Merck conducts an annual Culture Assessment that measures Merck’s progress toward becoming a high-performance organization

• FUNCTIONAL LEVEL• Merck implemented a global flexible work arrangement

policy and launched tools to increase access to such arrangements worldwide.

• Merck outlined steps in the Company’s ongoing efforts to reduce its cost structure, increase efficiency and enhance competitiveness as part of our overall strategy to regain an industry leadership position

• As part of the 2008 restructuring program, Merck expected to eliminate approximately 7,200 positions – 6,800 active employees and 400 vacancies – across all areas of the Company worldwide by the end of 2011.

MANAGEMENT STRATEGIES

• HRMMerck Serono, a division of Merck, Germany, announced that

it has won the prestigious "Human Capital Leadership Award" 2008 for "Strategic HR Leadership" by the Society for Human Resource Management (SHRM).

Merck Serono itself achieved total revenue growth of 7.4% in 2007 and 9.7% in the first quarter of 2008 - which was faster than that of the overall pharmaceutical market.

• Decision Making• Merck is constantly faced with tough decisions on which

products to invest in and how to allocate resources to functional areas. All these decisions are made under mounting pressure from the environment, with limited resources and staff, and with substantial uncertainties over drug discovery and development

• TQM• Merck believes that all world should have access to quality,

affordable health insurance coverage. • Merck believes that action toward health system reform and

coverage for the uninsured should be built on the following broad principles:

• Motivation and incentive techniques

Motivation & Incentives:• The pharmaceutical sales representatives at Merck call it

motivation• 1. Motivate and inspire employee behavior that fosters a

high-performing culture through a lean and flexible business model.

• 2. Align the interests of our senior executives with those of our shareholders to ensure prudent short-term actions that will benefit the long-term value of the Company.

• 3. Base salary and benefits• 4. Annual cash awards• 5. Severance and change in control

MARKET ANALYSIS

• SEGMENT AND TARGET MARKET:• Merck target market are patients who need/want cure , they

are also focuses on HIV/aids patients • 7 P’S:

PRODUCTS:• MERCK SERONO:• In this category they make products for Oncology,

neurodegenerative diseases, fertility, endocrinology, autoimmune and inflammatory diseases, Cardio Metabolic Care

• CONSUMER HEALTH CARE:• Products for Everyday health protection, mobility, women’s

and children’s health, cough and cold come under this.

PRICE:• In high income countries Merck is having competitive

prices.• In middle income countries, Merck provides vaccines at

significantly reduced prices, while in the least developed countries of the world,

Merck sells our two of our vaccines, GARDASIL and ROTATEQ, at prices at which we do not profit.

PROMOTION:

From 2005 to 2007 Merck Marker supported a health advocacy program on Pakistani national television

PEOPLE:Merck more focusing on poor peoples especially in African

countriesMerck can focus on HIV/aids people

Products of Merck Co.

• VACCINES– RotaTeq– COMVAX– M-M-R

Products of Merck Co. (Pak)

• Competitive analysis• If we see in global market Merck has some

major competitors .e.g. GSK, Sanofi Pasture, Wyeth having 23%, 26% and 12% market share respectively. And merck is having 16%(2009)

• The Merck/Schering-Plough tie-up would give the group 5.6 per cent of the world's pharmaceuticals market, pushing GSK into third place in the global league, with a 5.4 per cent share, according to Datamonitor/IMS Health.

MARKET SHARE:

Pakistan Share% Growth%

Merck Pharmaceutical

2.89 16.6

The Merck/Schering-Plough tie-up would give the group 5.6 per cent of the world's pharmaceuticals market, pushing GSK into third place in the global league, with a 5.4per cent share, according to Datamonitor/IMS Health.

FINANCIAL STRATEGIESCash flow

INCOME STATEMENT

• Cost/ expenditures• They have a couple of major costs as follows:• R&D• Advertisement• PROFITS:

EUR Millions Jan-jun2010 Jan-jun2009

Profit 381.5 170.1

REVENUES:

EUR million 2nd quarter2010

2nd quarter2009

Jan-jun2010 Jan-jun2009

Total revenue 2,208.0 1,909.7 4,306.9 3,768.2

• RATIOS:• EPS

LIQUIDITYDEC 31st 2009 DEC 31st 2008 DEC31st 2007 DEC31st 2006

Current Ratio 1.80 1.35 1.23 1.20

Quick Ratio 1.03 0.65 0.97 0.95

Cash Ratio 0.61 0.38 0.67 0.68

• TURNOVER RATIOS• Net working capital turnover: 3.20%• Fixed asset turnover: 1.08%• Total assets turnover: 0.6%• Inventory turnover: 7.8%• Receivables turnover: 2.6%• ROI• Total return on investment of Merck is

15.9%

OTHER STRATEGIES

• R&D:• Merck has always invested heavily in research and

development. n 2005, it amounted to € 713 million, in 2006 to € 752 million. Around 80% of our R&D spending is attributable to the Pharmaceuticals business sector, which has an R&D budget of approximately € 1 billion following the integration of Serono. Our R&D activities focus on future trends and the needs of society. It is also the key growth driver of business. Merck invested almost $5 billion annually on R&D in 2006, 2007 and 2008.

• Merck’s R&D model is designed to increase productivity and improve the probability of success by prioritizing the

resources of Merck Research Laboratories.

• PROCUREMENT:• Merck’s Global Procurement department introduced new

Detailed Supplier Ethical Assessment questionnaire for

suppliers of new products and services globally.

• Achieve 100 percent completion of Merck’s pre-selection Detailed Suppliers Ethical Assessment by potential suppliers of new business globally by 2010.

year 2008 2007 2006 2007

Merck procurement employees who have been trained in supplier diversity (%)

100 100 100 0

• PRODUCTION:• Merck is committed to seeking ways to reduce the cost of

our medicines and vaccines, and thus increase affords ability and access.

• Merck’s supply strategy combines the best skills and talents of our internal manufacturing organization with those of external manufacturers who provides with specialized skills and/or expertise and types of manufacturing services

• In recent years, we have concentrated our internal manufacturing capabilities on core competencies and leveraged external capabilities. This focus has, and will continue to, shift some operations historically conducted

internally to our external suppliers. We currently project that external manufacturers will eventually provide up to 35 percent of Merck’s manufacturing volume.

CONTROL PROCEDURES

• MARKETING CONTROL:

– Understand the customer’s perspective. – Anticipate and outsmart the competition.– Concentrate on selected audiences and behaviors. – Define the product’s distinctive value to selected audiences. – Plan for sequenced growth throughout the product’s life-cycle – Shape customer’s perceptions. – Ensure that execution is efficient, consistent, and well integrated. – Track results and re-evaluate decisions.

Production control• Acquiring Schering Plough left Merck with 91

manufacturing facilities. Phasing out of activities at the eight plants, coupled to other actions taken since the merger, will leave Merck with a network of 77 facilities which it will supplement with contract manufacturing deals.

• Of the eight sites Merck is cutting four are in Latin America. Merck will end manufacturing at facilities in Azcapotzalco and Coyoacan, Mexico and Brazil. It is also looking to sell its facility on Argentina. Quality control

• Merck believes that all world should have access to quality, affordable health insurance coverage. Without coverage, millions of people are denied access to needed health care including prescription medicines and other basic services. Without coverage, our health care system will not deliver its full value to all. Merck believes that action toward health system reform and coverage for the uninsured should be built on the following broad principles:

• HR control• The company received the Society for Human Resource

Management's Strategic HR Leadership Award. The honor recognizes an HR department that plays a key role in driving the performance and reputation of an organization

by leveraging human capital. Communicate often with employees--via webcasts, meetings, newsletters and other tools--to ensure acceptance. Redefine stock incentives and retention plans. Following an audit of total rewards, HR professionals created an interim compensation and benefits philosophy Harmonize performance management systems with different philosophies

PROBLEM SECTION

• MAIN PROBLEM ACCORDING TO THE MANAGEMENT:

• As Merck is working in 64 countries world wide in diverse cultures. So the management of Merck is facing problems in handling the different ethnic and social racial conflicts. Among employees and managers.

• Dissatisfied employees & shareholders. Because of retirement plan issues and false statements about Vioxx.

• Expensive medicines because of intense advertisement. • Revenue is dropped by 50% in 2003 & Net Income is 1

billion less in 2004 than in 2003. • Higher expenses on Selling & Administrative.

PROBLEM SECTION

• Main problem according to our analysis:

• Strong dependence on the American market - Most of Merck’s operations, 60% of its sales, is concentrated in the United States.

• Government Pricing.• Patents

STRATEGIC ALTERNATIVES

• SOLUTION TO SOLVE PROBLEMS:• To remove the conflicts b/w employees and managers the

basic need to fill is to improve and polish the interpersonal skills of managers and providing employees a friendly environment to work in.

• To make their employees satisfied they need to improve their retirement plans in the favor of employees that are more suitable of the retired employee.

• They should have a proper check on their advertisement campaigns as well to avoid ethical conflicts regarding customers.

• To reduce cost they should have an improvement in their promotion (advertisement) sector that will help them in better advertising their medicines with low cost. And will help them to reduce their prices.

• To meet their 2010 goal of 4 billion sales now they have to work hard from top to bottom by making new strategies and avoiding previous mistakes.

• As they are working in 64 countries world wide they should not only focus in American market but they should give a equal importance to each market in they are working in the field of operations and revenue.

• Government pricing is also a hurdle b/w company’s revenue to remove this Merck has to make good relation with Govt officials by diplomatic ways

STRATEGIC ALTERNATIVES

• Evaluation of solutions:• By making above solutions for Merck’s

problems, there will be a better image of the company in eyes of employees, customers and stakeholder.

Recommendations

Recommendation

Merck Co. should

discover and develop new processes to

yield high value products

more efficiently.

Merck Co. should create a new commercial model.• That should be

based on efficiently providing value to all customers at the right time, in the right way.

• Through Internet, health professionals.

Merck can make short &

long-term agreements

with its competitors to

make its employees &

shares satisfied.

Recommendation

Merck Co. should take initiative to create a flexible and lean cost

structure in every area of the company.

• General & Admin, commercial etc.

Merck’s should focus on alliances

as its revenue from alliance

products is much higher than that

reported for Pfizer.