Merck

Merck, being on one of the biggest pharmaceutical companies in the world today, came from a meek beginning and still encounters many problems today while trying to maintain a lead amongst its competition. While being looked at as a research and development driven company, Merck now has to go beyond R&D to stay competitive in the pharmaceutical industry. Attracting talent to work for the company has never been a problem for Merck, but the bigger question was whether or not this talent would be able to keep Merck's profits at a maximum and keep developing drugs in the pipeline.

Through the late 80's to early 90's, 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. By assessing some strengths, weaknesses, opportunities and threats (SWOT Analysis) of the firm itself and offering some recommendations of how Merck may be able to conquer this challenge, you will be able to conclude that the success of Merck as a company relies heavily on its management and how they adapt the business model that is already in place to that of the ever-changing pharmaceutical industry.

Strengths:

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. For example, during WWII, Merck had already developed three key technologies of the period, antibiotics, vitamins and hormones. Merck created a world class reputation for itself in revolutionizing pharmaceutical research. Deadly bacterial infections were being treated. Drugs such as Mevacor for arthrosclerosis and Vioxx for arthritis were emerging. This success of Merck's novelty drugs not only reaffirmed Merck's reputation in the market but it also increased sales and profits to imaginable numbers. The organization garnered in 2001 a total of $50,691,000,000 in sales and $13,909,000,000 (Exhibit 1) in profits pertaining to human health management, prescription, animal health and other departments.

A second strength for the Merck organization is the establishment of the Drug Development Process for new potential drugs. After the pre-clinical phase and animal study trials, Merck files an Investigational New Drug application with the Food and Drug Administration (FDA). Through the FDA system, the potential drug goes to Phase I where it is given to a small sample of volunteers and at different level of dosages. Next is Phase II in which the drug is studied in patients for long durations. Phase II provides preliminary evidence regarding safety and appropriate doses for larger studies. In Phase III the drug is studies in two groups, the double-blind test placebo group and the inert substance group. The group study will look at the risks and benefits and establishes labeling for the drug. After Phase III, Merck would file for a New Drug Application which is then reviewed by the FDA. Phase IV can be used if Managed Care Organizations (MCOs), outside researchers or the FDA requested for more study and evaluation after the drug is approved and goes into the market.

A third strength 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. One top-rated biologist indicated that the reason he moved from academic to joining Merck because scientists are valued and first-rate science is done (Gilbert and Sarkar 4). 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 (Exhibits 2). The organization's drug approval rate was recorded by outside scientists at 70% which is higher than the average industry approval rate of 50% (Gilbert and Sarkar 4).

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 (Gilbert and Sarkar 10). 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.

Weaknesses:

Although Merck has encountered success, the organization has confronted weaknesses and disappointments.

One weakness that Merck has confronted is the duration of the drug development, the value of the drug being evaluated and the length of the FDA application for drug approval. 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 (Gilbert and Sarkar 3). A drug development time may take on average over 15 years and expenditure R & D total costs of about $880 million (Gilbert and Sarkar 2) (Exhibit 3). The length for and FDA application is at least 100,000 pages, which details the potential drug's usage, production, formula and labeling.

Another weakness with Merck is that too much power is given to scientists in decision-making of candidate drugs. The MRL was somewhat the main decision-makers in organizing