Verizon Organizational Analysis

Sample- Merck Inventing For Life- Organizational Analysis

External Environment

In other words, macro environment in today’s world has significant impact on global businesses irrespective of home country of the business. Daft defined organizational environment as all the factors which are external to the organization impacting directly or indirectly the part or whole of an organization which could be short term or long term.[footnoteRef:1] Any external change will have a repercussive effect on organization’s operation as well as on its products, services and policies. There are ten elements to be considered in external environment according to Daft in order to understand an organization such as: industry, raw materials, human resources, finance, economic conditions, market, technology, socio-cultural conditions, government, and international environment.[footnoteRef:2] Following section explicates how these external elements are impacting pharmaceutical industry on a broader context with an explicit focus on Merck & Co. [1: Daft, R.L., & Armstrong, A. (2015). Organization theory and design (3rd ed.). Toronto, ON: Nelson Education.] [2: Daft, R.L., & Armstrong, A. (2015). Organization theory and design (3rd ed.). Toronto, ON: Nelson Education.]

Pharmaceutical industry is one of the most competitive and highly regulated industries involving advanced research and development needing excess capital and resources. Drug discovery and development is an arduous and risky task involving many years of research and exploration with unpredictable end results. Pharma sector is under constant pressure to discover new drugs and therapies for creating breakthroughs in patients’ lives. It is estimated that about $190 billion dollars were spent in 2019 by pharma companies across globe towards R&D. While such aggressive research and development is taking place, anti-microbial resistance (AMR) is driving a major setback for all the companies. According to a report by the National Health Institute, the CDC estimated that the cost of antimicrobial resistance is $55 billion every year in the United States, $20 billion for health care and about $35 billion for loss of productivity.[footnoteRef:3] Such a loss of estimated $55 billion is a burden of economy and various studies have also showed the impact of AMR in Europe, Asia, Latin America and Oceanian nations.[footnoteRef:4] Governments across the globe are constantly pressurizing pharma companies to conduct research for fighting superbugs and control of pharmaceutical pollution. Regulations and various signed treaties such as the Davos Declaration of various drug makers and AMR Action Fund recently in 2020 are some of the initiatives taken by both public authorities and private pharma tycoons to control the impact of AMR. The UN and WHO are also partners of the Davos Declaration and the AMR Action Fund initiatives thriving for sustainability as the noble cause. Merck being a leader in developing vaccines since its founding, is also committed to fight against the AMR repercussions, it set out new strategies by signing various global initiatives and conducting partnered research through AMR Action Fund showing its stewardship against AMR,[footnoteRef:5] creating a sustainable advantage among its major competitors. [3: Dadgostar P. (2019). Antimicrobial Resistance: Implications and Costs. Infection and drug resistance, 12, 3903–3910. https://doi.org/10.2147/IDR.S234610] [4: Chen, H. H., Stringer, A., Eguale, T., Rao, G. G., & Ozawa, S. (2019). Impact of antibiotic resistance on treatment of pneumococcal disease in Ethiopia: an agent-based modeling simulation. The American journal of tropical medicine and hygiene, 101(5), 1042-1053.] [5: Merck & Co. (2019, October 1). Working together to create a sustainable market for antibiotics. Retrieved from: https://www.merck.com/stories/working-together-to-create-a-sustainable-market-for-antibiotics/]

Merck is known to be an aggressive player reinforcing its research abilities by discovering mumps-measles vaccine commercially in 20th century acquiring most of the market. Its strategy over years has been expansion by mergers and acquiring various research-based firms. Merck has not only been a pioneer in the US market but also in international markets by acquisitions. Some of the major mergers Merck has involved itself were Sharp & Dohme in 1953[footnoteRef:6]; merging with Schering-Plough in 2009 and acquiring all its products for $41 billion in 2009 whose allergy drugs such as Claritin and Clarinex, anti-cholesterol drug Vytorin and Temador for brain tumor are some of the blockbuster drugs in the history of Merck,[footnoteRef:7] also a recent acquisition of Themis depict the growth and outreach of Merck drugs worldwide. Pharma sector accounts for about 20% of the US GDP underlying a fact that any change in the industry poses a vital change in the economy of the US and vice versa. Merck today is taking a different approach as in it is planning to restructure itself into a pure-science based organization with its planned spinoff of Organon & Co., by separating its women healthcare and biosimilars division by first half of 2021.[footnoteRef:8] With a wider portfolio of research and development in place along with sophisticated drugs and therapies in its pipeline for FDA approval, Merck is possessing advantage over its competitors. Having said that, peers such as JNJ, Pfizer, GSK, Roche, and other global players also have very rich corporate philosophy and quest of creating breakthrough medicines, which in turn boosts Merck to constantly seek opportunities for development in order to stay up the competition in the industry. [6: Galambos, L., & Sewell, J. E. (1997). Networks of Innovation: Vaccine Development at Merck, Sharp and Dohme, and Mulford, 1895-1995. Cambridge University Press.] [7: Merck & Co. (n.d.) Merck 2016 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReportArchive/m/NYSE_MRK_2016.pdf] [8: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf ]

Pharma industry being spread out across four corners of the world, needs an efficient system of supply chain in order to produce and deliver medicines to the global population as and when needed. Merck being one of the dominant global pharmaceutical organization, involve itself from discovering, developing, manufacturing, marketing, and selling drugs and therapies to patients both in the US and international locations. Such a widespread base of operations involves many and diversified suppliers which on whole builds a sophisticated and complex supply chain. Merck has therefore put forward stringent constraints for its supplier and distributing partners as well as for its subsidiaries as drug companies should be very efficient in forecasting, producing, and delivering drugs on time. Merck has mandated its supplier partners to abide by the norms set by the US Food and Drug Manufacturing (FDA) and US Current Good Manufacturing Practices (CGMPs) by FDA ensuring quality of raw materials.[footnoteRef:9] [9: United States Food and Drug Administration. (n.d.). Guidance and Manuals on Pharmaceutical Quality. Retrieved from https://www.fda.gov/drugs/pharmaceutical-quality-resources/guidances-and-manuals-pharmaceutical-quality]

Either branded or generic drug, both need main component called as Active Pharmaceutical Ingredient (APIs) which are then converted into consumable form by further formulation served as final dosage form (FDFs). Any pharma company can sell their drugs either as prescribed drugs (branded or generic) or as the over-the-counter (OTC) drugs. Merck being incorporated in the US can sell through its distribution channels either as prescribed or OTC drugs, which for major part sells all of its drugs as prescribed after October 1, 2014 after spinning off their consumer products division. Having such norms in place makes Merck to actively seek suppliers who have an ability to abide those rules by providing raw materials efficiently both in terms of quality and quantity. It further restricts firm’s ability to direct raw material suppliers wholly to act according to only one’s interest thus inducing healthy competition in the system. Aspects such as forecasting, producing, accessibility, access, and pricing to resources also govern companies to choose their supplier partners as in case of Merck.

Creating economic empowerment through diversity & inclusion is Merck’s policy behind any of their potential suppliers. Pharmaceutical supply chain (PSC) is one of the most complex and constantly evolving in the industry because medicines are needed whose usage is quite unpredictable. The NIH study shows that inaccuracy in forecasting, long lead times, lack of optimum target inventory, and high SC costs are the most important PSC problems.[footnoteRef:10] It is estimated that about 13% of APIs for the US come from China, India supplies about 18% of APIs while European Union supplies 26% and the US itself has about 28% API producers.[footnoteRef:11] There has always been an ongoing discussion on supply chain restructuring for the pharma industry in the US as well as other nations such as EU. Thus, Merck in order to stay up the game has to be an efficient manager of its raw materials as it draws a major share of raw materials from Asia and Europe. Leveraging science to create supply chain solutions, transforming molecules to make it available to millions, collaborating to modernize glass packaging, establishing environment friendly manufacturing sites are some of the initiatives taken by Merck to maximize profits from existing supply chain by achieving its goals.[footnoteRef:12] Having such an advantage of early on investments in future and disruptive technologies and fairly strong supply chains shall allow Merck to rise and achieve its development goals. [10: Moosivand, A., Rajabzadeh Ghatari, A., & Rasekh, H. R. (2019). Supply Chain Challenges in Pharmaceutical Manufacturing Companies: Using Qualitative System Dynamics Methodology. Iranian journal of pharmaceutical research : IJPR, 18(2), 1103–1116. https://doi.org/10.22037/ijpr.2019.2389] [11: United States Food and Drug Administration. (n.d.). Guidance and Manuals on Pharmaceutical Quality. Retrieved from https://www.fda.gov/drugs/pharmaceutical-quality-resources/guidances-and-manuals-pharmaceutical-quality] [12: Merck & Co. (n.d.). Suppliers. Retrieved from: https://www.merck.com/company-overview/suppliers/]

Merck has stringent policies in place in order to meet its employees’ materialistic needs so as to deliver reliable medicines on time to patients globally. Merck is committed strongly to the wellbeing of its employees which is also one of their five core values.[footnoteRef:13] In the US, Merck is a registered federal lobbyist committing itself to develop and deliver drugs for betterment of patients’ lives by suggesting on pricing and ways to improve public health.[footnoteRef:14] Many of the Merck’s initiatives such as their global engagement policies, trade agreement policies, supplier and distributing contracts as well as their federal and state lobbying disclosures display their work ethic along with public, doctors and governments facilitating healthcare. [13: Merck & Co Mission, Vision & Values. (n.d.). Retrieved from: https://www.merck.com/company-overview/] [14: Scutti, S. (2019, January 24). Big Pharma spends record millions on lobbying amid pressure to lower drug prices. CNN. Retrieved from: https://www.cnn.com/2019/01/23/health/phrma-lobbying-costs-bn/index.html]

Merck is also widely known for its Merck Manual (a drug manual which discusses various medications, drugs and their effects which was started by George Merck in 20th century) continuing till today as well as Merck’s code of conduct manual.[footnoteRef:15] Their values and standards handbook aimed mainly at people, one of their four core values of existence. Merck’s people include their suppliers, employees, shareholders, customers, and their communities and society. Having good workforce is a valuable asset for any organization in order to succeed in the market against its competitors including pharma business. R&D shall only add if the R&D employees are highly reliable and critical on their findings and procedures which brings the advantage of success in delivering breakthrough drugs and therapies. Skilled workforce is the only driver of both R&D and manufacturing facilitating delivery of drugs on time in addition to pharma companies’ extra investment on advanced technologies. [15: Merck & Co. (2015). Our Values and Standards – The Basis of our Success. Retrieved from: https://www.msdresponsibility.com/wp-content/uploads/2015/08/code_of_conduct.pdf]

Moreover, compensation packages, employee satisfaction and work environment are some of the basic factors that govern people’s commitment to their organization. Thus, having effective compensation and executive committees enforces all policies correctly there by providing a positive workplace for change making employees. Merck holds a widely recognized position in all such employee related factors as it was rated as the best place to work by the 83% of its employees in 2019 according to a survey.[footnoteRef:16] Merck insists its employees to seek new challenges depending on their interests rather than position requirements which boost employees’ morale to work more and develop their skills. Such practices over years have infused a strong organizational culture increasing their productivity, which is one of the best ways of treating employees suggested by various management scholars.[footnoteRef:17] [16: Muse, L. A. (2011). Flexibility implementation to a global workforce: a case study of Merck and Company, Inc. Community, Work & Family, 14(2), 249-256.] [17: Seppala, E & Cameron, K. (2015). Proof that Positive Work Cultures are More Productive. Harvard Business Review, 85(8).]

With the enactment of Tax Cuts and Jobs Act (TCJA) in 2017 by the US where corporate taxes were reduced 35% to 21%, Merck recorded a provisional amount for its one-time transition tax liability of $5.3 billion in 2017.[footnoteRef:18] Merck paid $4.5 billion, $1.5 billion and $4.9 billion, in income taxes paid for years 2019, 2018 and 2017 respectively.[footnoteRef:19] Merck reported revenues of about $40.3 billion, $42.3 billion and $ 46.9 billion in 2017, 2018 and 2019 years respectively[footnoteRef:20] which show the unlikely impact of foreign currency exchange rates as well as one-time tax liabilities to be fulfilled in both the US and other global locations. In Japan, the pharmaceutical industry is subject to government-mandated biennial price reductions of pharmaceutical products and certain vaccines, which occurred in 2018.[footnoteRef:21] In addition to industry-specific hindrance, Merck is also succumbed to the federal government pressure of not increasing drug prices more than 10% yearly has taken a hard hit on revenues of Merck.[footnoteRef:22] [18: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [19: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [20: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [21: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [22: Financial Post. (2020, January 03). Novartis, Merck, and Allergan join those raising U.S. drug prices for 2020. The Financial Post. Retrieved from: https://financialpost.com/pmn/business-pmn/novartis-merck-and-allergan-join-those-raising-u-s-drug-prices-for-2020]

Trump’s administration ahead of 2020 elections is taking a tough toll on drug pricing in the US as well as governments such as in Japan, China and EU are constantly pressurizing pharma companies to reduce price ahead of selling in respective countries. US government being their major consumer, Merck had to reduce their certain drug prices such as M-M-R-II, Varivax, ProQuad and many more in order to boost their sales volume in the US.[footnoteRef:23] Due to increasing competition against biosimilars and women’s healthcare, Merck has strategized itself to turn into a pure science and research based company by planning their spinoff of Organon & Co. Despite certain setbacks, Merck still realizes blockbuster revenues from products such as Keytruda, Clarninex, Gardasil/Gardasil 9, Pneumovax, Emend and Lynparza.[footnoteRef:24] Nevertheless, of growing generic competition, Merck has secured its market by seeking about ten drug approvals by 2019 and almost fifteen major drugs under phase 3 of clinical trials awaiting final FDA approval. Having such an intensive R&D in pace along with number of licensing agreements, Merck has already planned a major turnout for coming years. All in all, it shows that Merck is clear on building up counteractive strategies to fight off generic competition for its near expiring drugs and operating for long term sustainability. [23: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [24: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf]

Drugs are an essential need for world population making global markets highly needy and competitive in nature for pharmaceutical companies. Merck operating in more than 140 world countries with about 270 global locations,[footnoteRef:25] supplying wide variety of drugs in both human and animal health sectors gained international revenues of about 56.6% in 2019, 56% in 2018 and 56.5% in 2017 out of total revenues in corresponding years.[footnoteRef:26] Merck has about 144 external manufacturing sites including the US and global plants, 35 corporate alliances and 98 regional alliances providing access to their products.[footnoteRef:27] With such an explicit market presence and accessibility across the globe, Merck has a definite demand for its products. Having said that, due to its vast presence along with various global trade and drug usage restrictions involved, Merck has an inevitable repercussion due to any changes in the market which could be due to regulations or public health or drug quality. Merck’s main customers include government health agencies, health management firms, employee agencies, benefit management firms, hospitals, doctors, pharmacies, and direct consumers in case of the US. Thus, any regulatory changes to the customers also have an impact on operations and drugs manufactured by the Merck. Merck until October 01, 2014 had consumer business division selling OTCs which was later divested, also had about $78 million in amounts of 2019 related to that divesture.[footnoteRef:28] It can be concluded that the operations of Merck are exposed to significant threat from both domestic and international markets. [25: Merck & Co. (n.d.). Manufacturing and Supply. Retrieved from: https://www.msdresponsibility.com/access-to-health/manufacturing-supply-chain/] [26: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf] [27: Merck & Co. (n.d.). Manufacturing and Supply. Retrieved from: https://www.msdresponsibility.com/access-to-health/manufacturing-supply-chain/] [28: Merck & Co. (n.d.). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf]

As a robust pharma organization, Merck uses advanced technology to discover, develop, produce, and deliver medicines in the lucrative drug industry. Merck manufactures chemical drugs, biologic drugs, vaccines veterinary drugs and vaccines all of needing sophisticated manufacturing equipment involving high tech. Merck’s worldwide research and development division known as Merck Research Laboratories, operates and collaborate within some of the leading bio-pharma ecosystems including the San Francisco Bay area, California; Boston/Cambridge, Massachusetts; New Jersey; Pennsylvania and Canada.[footnoteRef:29] Aforementioned R&D centers conduct R&D for all the segments of Merck including human and animal health. Their main areas of research include oncology, vaccines, infectious diseases, cardio-metabolic disorders, and neuroscience along with intensive discovery and development programs.[footnoteRef:30] In order to expedite their research processes as well as to boost their developing and manufacturing processes, Merck uses various advanced technological platforms as part of their digitalization objective discussed below: [29: Merck & Co. (n.d.). Research and Products. Retrieved from: https://www.merck.com/research-and-products/] [30: Merck & Co. (n.d.). Research and Products. Retrieved from: https://www.merck.com/research-and-products/]

1. Digital transformation resulting production expedition and effective process development

Digital transformation provides manufacturing companies with broader success as it provides accuracy in forecasting and expedited manufacturing and quality control processes. While manufacturing APIs or FDFs, it is mandatory to quality check and valuate the results at every stage of production which is also a necessary requirement according to the FDA norms. Previously, at every stage samples were collected and manually tested whose results were calibrated in the excel spreadsheets. That is a tedious process as it should be done for every product at every stage as part of the production process. Every departmental data is in a way siloed which prevents data engineers or scientists to compare and provide an analysis with the broken data. Thus, Merck has decided to transform their top three products manufacturing process digitally so as to produce more resulting larger revenues. In a recent presentation 2019, Dr. Eugene Tung, Executive Director, Manufacturing IT, and digital transformation co-leader at the $7 billion Vaccine Business Unit at Merck & Co. described how and why Merck is investing in digital transformation.[footnoteRef:31] They estimated about $1 billion in savings of which $500 million[footnoteRef:32] are directly coming from the manufacturing, initially found four areas for transforming: Product data management, predictive condition monitoring, technology-enabled laboratories, steam trap monitoring and open standards. [footnoteRef:33]As manufacturing involves many rotating parts and turbines whose constant monitoring is required or else has a significant impact on product availability and revenues, thus, having advanced tech base manufacturing setup certainly gives Merck at advantage of succeeding the market. [31: Abel, J. (2019, June 27). Digital Transformation at Merck Pharmaceuticals. ARC Advisory Group. https://www.arcweb.com/blog/digital-transformation-merck-pharmaceuticals] [32: Abel, J. (2019, June 27). Digital Transformation at Merck Pharmaceuticals. ARC Advisory Group. https://www.arcweb.com/blog/digital-transformation-merck-pharmaceuticals] [33: Abel, J. (2019, June 27). Digital Transformation at Merck Pharmaceuticals. ARC Advisory Group. https://www.arcweb.com/blog/digital-transformation-merck-pharmaceuticals]

2. Innovation in the life sciences with the 3D printing technology

Marc Durante, associate director of Merck’s IT Regional Workplace Services explains how Merck’s 3D technologies are evolving to become top solutions for innovations in life sciences. Merck had its first 3D tech workspace recently in 2014 when Marc was supported by then senior IT president with proof of concept of having 3D in house.[footnoteRef:34] Today Merck’s 3D tech research centers are main stations for prototyping cells and conducting experiments for manufacturing hard-to-find manufacturing parts. Merck now has four established and actively working 3D printing locations globally in New Jersey, Singapore, Pennsylvania, and Ireland with an ongoing fifth unit in Latin America along with 1500 projects of 3D and two patents.[footnoteRef:35] Having such an advanced workspace is positioning Merck in forefront of innovating various molecules and manufacturing processes which in future facilitates their revenue increase by expedited research and delivery. Using 3D printing, Merck is also using other data analytics platforms to understand the life cycle and patterns of various pathogens, which then stimulates their research and drug findings. [34: Merck & Co. (2020, June 25). Innovation: If you build it (in 3D), they will come. Retrieved from: https://www.merck.com/stories/if-you-build-it-in-3d-it-will-come/ ] [35: Merck & Co. (2020, June 25). Innovation: If you build it (in 3D), they will come. Retrieved from: https://www.merck.com/stories/if-you-build-it-in-3d-it-will-come/ ]

3. Global health innovation (GHI) fund for explicit R&D

An independently operating firm under Merck, looks at potential technology innovators in healthcare segment where they develop cutting edge technologies in order to serving the global population with main focus on North America and Europe.[footnoteRef:36] It is a way Merck brings in the venture capitalists to value creation by using their expertise in given areas of medical science or real time data collection and segregation. It attracts investors from global platforms with an access to needing expertise from across all the 140 operating nations by Merck and allocating necessary talent as and when needed. GHI typically invests with six main areas as focus: Therapy Planning, Care Management, eClinical Trials, Health Analytics and AI, and Enabling Technologies. [footnoteRef:37]By investing in such technologically advanced firms, Merck has an outright approach to obtain sustainability using its expertise in developing vaccines as well as drugs in various areas of medical science. [36: Merck & co. (n.d.). Global Health Innovation Fund: Leadership in Digital Health Investing. Retrieved from: http://www.merckghifund.com/] [37: Merck & Co. (n.d.). Global Health Innovation Fund: Leadership in Digital Health Investing. Retrieved from: http://www.merckghifund.com/]

In addition, according to their various press releases and website, Merck is committed to create breakthroughs through patients’ lives by bringing them the best practices of science in developing medicines and treatments. Merck’s recent blockbuster drug Keytruda is used many types of carcinoma (such as melanoma, non-small-cell lung cancer (NSCLC), small-cell lung cancer (SCLC), head and neck squamous cell carcinoma (HNSCC), classical Hodgkin Lymphoma (cHL), primary mediastinal large B-cell lymphoma (PMBCL), urothelial carcinoma, microsatellite instability-high (MSI-H) or mismatch repair deficient cancer, gastric or gastroesophageal junction adenocarcinoma, esophageal cancer, cervical cancer, hepatocellular carcinoma, and merkel cell carcinoma)[footnoteRef:38]. Having such wide range disease curing features of one drug, Merck is all set realize billions of dollars under Keytruda which is used alongside with chemotherapy as an immunotherapy promoting technological usage in Merck’s growth. [38: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Global economy has a significant impact on either success or decline of any multinational organization including Merck. Operating in more than 140 world countries, any changes in economic policy and regulations of those countries will have either positive or negative effect on business activities of Merck either locally or on whole business. Major economic factors such as inflation rates, interest rates, foreign exchange rates and fluctuations, GDP, and economic cycles of respective nations govern Merck business activities.

Pharma industry by nature is a highly capital-sensitive industry companies spending billions of dollars in R&D creating breakthrough drugs and therapies. Merck’s investment on R&D has been growing over years, it was about $11.11 billion in 2010 and later on declined to $7 billion nearly until 2015.[footnoteRef:39] However, since 2016, its spending has been increasing to about $10.14 billion in 2016, $10.2 billion in 2017, $9.8 billion in 2018 and $9.9 billion in 2019, which was about 1% increase when compared to that of 2018.[footnoteRef:40] That 1% increase was primarily driven by $993 million charge in 2019 against the acquisition of Peloton,[footnoteRef:41] along with the higher expenses for clinical trials and development as well as increased investments on discovery research and early drug development. Data and privacy laws are also pivotal on Merck’s business across both developed and emerging nations as respective governments are posing stringent policies. The EU General Data Protection Regulation, effective since May 25, 2018 along with the California Consumer Act effective as of January 01, 2020 are some of the strongly impact economic reforms on Merck’s operations.[footnoteRef:42] Performance of Merck also depends on their rebates, sales return, discounts, and chargeback policies which need more cash by increasing cash burden on Merck. With the TCJA enactment in 2017, Merck has reported one-time payment of about $5.5 billion in 2017 along by paying $4.5 billion, $1.5 billion, and $4.9 billion, in income taxes for years 2019, 2018 and 2017 respectively.[footnoteRef:43] It shows how Merck allocates its cash through necessary debts with interest rates associated which have adverse impact over time and change in economy. [39: Merck & Co. (n.d.). Merck & Co 2015 Annual Review. Retrieved from: http://d1lge852tjjqow.cloudfront.net/CIK-0000310158/fd6051bf-9334-4dcc-be51-9f07b61c2ed4.pdf] [40: Merck & Co. (n.d.). Merck & Co 2017 Annual Review. Retrieved from: https://www.sec.gov/Archives/edgar/data/310158/000031015818000005/mrk1231201710k.htm] [41: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [42: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [43: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Inflation and foreign exchange rates are the greatest contributing factor for rise or decline of revenues generated across more than 140 countries for any given fiscal year of Merck. Headquartered in Kenilworth, New Jersey, US and listed on the New York Stock Exchange (NYSE), annual revenues and books are reported according to the GAAP rules where they realize profit or report losses depending on the exchange rate fluctuations. It was reported that the worldwide revenues of $46.8 billion in 2019 with an increase of about 11% when compared with that of 2018 including 2% from the unfavorable effect of foreign exchange.[footnoteRef:44] Merck’s Animal Health segment profits decreased about 3% in 2019 driven by unfavorable product mix, high investments in selling and product development and unfavorable foreign exchange impact.[footnoteRef:45] During 2019 and 2018, Merck reported unrealized losses of about $13 million and $26 million respectively in other (income) expense, net due to investment with unfavorable impact of foreign exchange.[footnoteRef:46] [44: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [45: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [46: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Economic cycle also has an influence on performance of businesses enabling them to grow during positive economic cycle while plummeting during negative economic cycle. Despite, there are industries which are essential for any country irrespective of economic cycle such as food and beverages (F&B) industry, drug industry and etc. Government policies and administrative norms also regulate the economic cycle of particular country governing their spending on healthcare which in turn effect Merck’s activities. Pharma sector serves as the backbone of many advanced economic nations such as the US as well as emerging economies such as China and India. Pharma sector represents about 4% of the total US GDP which is highly regulated and competitive industry.[footnoteRef:47] In November 2019, Board of Directors approved to pay $0.61 dividend per Common outstanding stock in January 2020.[footnoteRef:48] Merck had also paid $0.61 in dividend for their first quarter in 2020 which was approved in January 2020 by the Board.[footnoteRef:49] In addition, Merck’s Board authorized purchases of about $10 billion in common stock for their treasury in October 2018[footnoteRef:50] as well as spent nearly $4.8 billion to purchase 59 million shares for treasury during fiscal 2019.[footnoteRef:51] Merck also invested in acquiring Peloton for breast cancer drugs as well as planned to release Herceptin biosimilar partnering with Samsung’s Bioepis against Roche’s ahead of patent expiry in June 2020. Today, Merck has about 56% from international markets out of total revenues excluding the US shows remarkable market presence from that of previous decade. Thus, it is quite clear that Merck has an opportunity for increasing market presence in the lucrative pharma sector along with high susceptibility to global economic factors. [47: TEConomic Partners LLC & PhRMA. (n.d.). The Economic Impact of the U.S. Biopharmaceutical Industry: National and State Estimates. Retrieved from: http://phrma-docs.phrma.org/sites/default/files/pdf/biopharmaceuticaul-industry-economic-impact.pdf] [48: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [49: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [50: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [51: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Daft summarized that political and economic stability, intellectual property rights (IPR) policy, foreign investment policy, trade policy, tax reforms and healthcare sector norms and administrative regulations altogether possess a significant threat on Merck’s commercial business or any multinational corporation across the globe.[footnoteRef:52] [52: Daft, R. L. (2008). Organization theory and design tenth edition. (p. 142) Mason, OH: South-Western Cengage Learning]

Political stability is a major concern for Merck ahead of operating in various countries due to their restrictions on industries, healthcare policies, and drugs consumption. Interference of politicians and bureaucrats in designing a healthcare policy brings in high-end lobbying and corruption activities into picture. Merck is posed to great threat due to political instability, corruption, and other illegal activities especially while dealing with some of the African and Latin American nations.[footnoteRef:53] Policies regarding employment such as minimum wage, union norms, and labor laws effect Merck’s functioning across the globe similar to those of any multinational organization. Minimum wages and employee safety laws are stringent in some nations such as Europe or North America imposing quite a threat for Merck. Pharma industry, by very nature, is an explicitly regulated industry as it directly impacts public health and safety, thus needing all the quality standards to be satisfied while operating in any nation worldwide. Governments across countries decide what Merck is allowed or not allowed to either produce or market in one country. [53: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Intellectual property rights (IPR) law also implies certain restrictions on operations of Merck which at times does not allow them to sell some of their products in some nations. Not all the nations have stringent IPR norms posing a significant threat to Merck as some of its novel drugs could be duplicated or even technology could be copied. Under such instances, it denigrates the originality keeping Merck’s properties at risk of misuse and counterfeit drugs being sold in the same market. Third party infringements or even governments seek to invalidate or circumvent some of the drug approvals for Merck posing an immediate threat for Merck’ operations in those nations. Merck, in 2017 was a victim of cyber-attack where attack disrupted their worldwide network of operations, including manufacturing, research and sales activities.[footnoteRef:54] Taxation norms are also an impeding factor due to government interference on policies such as TCJA enactment by the US in 2017 reducing corporate tax from 35% to 21%.[footnoteRef:55] Such initiatives provide a scope of growth and expansion for firms such as Merck in turn creating an advantage over peers in the market by utilizing their cash for new investments. [54: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [55: Stein, J. (2019, December 16). Corporations paid 11.3 percent tax rate last year, in steep drop under Trump’s law. Washington Post. https://www.washingtonpost.com/ ]

Foreign and trade regulations are also governing factors for international operations as they stipulate the foreign direct investments (FDI) because Merck’s major revenue comes from China, Japan, Europe, and Asia. In 2016, UK has signed a memorandum to exit from the European Union which was completed in 2019 with a transitional period from January 31, 2020 to December 31, 2020.[footnoteRef:56] With Brexit, Merck has to now seek separate approvals for drugs in order to market and sell in the UK apart from EU approval through European Medical Agency (EMA). In order to cater to the newly developing pharma market in the UK, Merck has planned to open a £1 billion research hub expecting to employ about 800 workers for the site.[footnoteRef:57] Such policies directly impact the functioning of Merck in specific countries which could either support or denigrate further growth of Merck in a specific nation. [56: O’Neal, A. (2019, December 31). Boris and Britain After Brexit. Wall Street Journal. https://www.wsj.com/] [57: Cookson, C. (2020, August 17). Merck plans to build £1bn UK research hub in central London. Financial Times. https://www.ft.com/]

Pricing is an inevitable issue faced by possibly every global biopharma company such as Merck, Pfizer, JNJ and many more. In 2018, after intense pressure from the US President Donald Trump introducing International Pricing Index (IPI) model making Merck, Pfizer, Novartis, and many other big pharma ceiled their price increase for next five months.[footnoteRef:58] However, Merck, Roche and other firms were back with price increase but less than 10% in 2019 as they had to allocate their capital for producing blockbuster drugs such as Januvia and Keytruda in case of Merck.[footnoteRef:59] In Europe, Merck faces an issue due to competitive pricing due to presence of generics and biosimilars in the market as well as governments apply the method of reference pricing.[footnoteRef:60] Thus, both competitive pricing and reference pricing pose a threat to Merck in order to control its price in turn opting cost saving methods while manufacturing and delivering drugs in the Europe. [58: Wattles, J. (2018, July 20). Merck pledges to cut prices for seven drugs. CNN. https://money.cnn.com/] [59: Darie, T. (2019, July 9). Drugmakers Boost Prices Up to 909%, Defying Political Pressure. Bloomberg. https://www.bloomberg.com/] [60: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Moreover, in 2018, pharma industry in Japan, is subjected to the government-mandated biennial price reductions for pharma products as well as specific vaccines which is likely to occur in 2020.[footnoteRef:61] In 2017, Chinese government also had updated the National Reimbursement Drug List for first time in the eight years which serves as an additional threat for the operations of Merck.[footnoteRef:62] Thus, Merck is exposed to a great threat in terms of pricing as well as tax reforms under government which as said earlier is inevitable. Therefore, Merck has to be wise while allocating its capital as and when needed and devise new methods for cost effective production as well as seeking developments in new and established markets. [61: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [62: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Improving patients’ lives through breakthrough discovery of drug or therapies using science is the major vision of Merck which underlines sociocultural aspects are the main factors for Merck to discover and develop drugs accordingly. Thus, aspects such as demographics, lifestyle, disease patterns, urbanization, immunity analysis, epidemic history serve as crucial pieces of information for Merck for R&D. In addition, culture, attitude towards disease and control, and societal value system also contribute to drug development as they guide Merck about response of the government and people after the approval. As a discoverer, Merck needs a thorough understanding of local society facilitating accurate interpretation about the causes and consequences of any new disease or pathogen or a new unknown development in a known disease. Such a deeper analysis requires data intelligence, business, and market intelligence teams to find ongoing developments in the lives of people as well as markets for their R&D purposes. Patient empowerment, changing patient demographics, and patient data are essential attributes influencing active development of drugs in day-to-day business activities of Merck globally. According to their corporate site, Merck is committed to United Nations Sustainable Development Goals (SDG) by contribution majorly to SDG-3, SDG-5, SDG-6, SDG-7, SDG-8, SDG-12, SDG-13, and SDG-17 by 2030.[footnoteRef:63] [63: Merck & Co. (n.d.). MSD Corporate Responsibility Report: Sustainable Development Goals (SDGs). Retrieved from: https://www.msdresponsibility.com/reporting/un-sustainable-development-goals/]

Any milestone achieved by the drug sector is mostly a positive impact on society which could be a turmoil when the discovered drug has some unknown side effects as in case of Vioxx. Millions of people are employed by the biopharma industry by giving hope to the patients and intending to reduce their suffrage. Despite drugs being expensive, they are an essential need bringing in the high social value associated with the drugs. Increasing demand for high-quality disease curing drugs is an explicit driving force behind the operational success of Merck. In recent epidemics and disease outbreaks, pharma companies have played a vital role in curing and preventing occurrence of various diseases by developing vaccines and drugs for AIDS, SARS, swine flu, leukemia and many more. Merck’s role has been pivotal in developing vaccines and drugs such as Streptomycin, M-M-R II vaccine and also eradicating river blindness in Africa.[footnoteRef:64] Merck along with Pfizer, JNJ, GSK and other five firms is committed to the social value under developing the SARS Covid-19 according to the memorandum released by the FDA.[footnoteRef:65] Therefore, it makes Merck, the center of ecosystem of life seeking constant support from society and governments fostering improved health by developing lucrative drugs. [64: Merck & Co Company Overview. (n.d.). Retrieved from: https://www.merck.com/company-overview/history/] [65: Merck & Co. (2020, September 8). Biopharma Leaders Unite to Stand with Science. Retrieved from: https://www.merck.com/news/biopharma-leaders-unite-to-stand-with-science/ ]

It was reported that Merck had a revenue growth of about 11% in 2019 in worldwide sales primarily driven by Keytruda in oncology as well as alliance revenues related to Lynparza and Lenvima.[footnoteRef:66] Merck has revenues exceeding $500 million from across North America, Latin America, Europe, and Asia-Pacific segments in 2019, 2018 and 2017 respectively showing an expanding curve. Merck reported $46.84 billion in revenues in 2019 of which about 44% was from the US while revenues from Europe, Middle-East and Africa were about 28% with 7.7% from Japan, 6.9% from China, 6.3% from Asia-Pacific and remaining 8.9% from the rest of world.[footnoteRef:67] It can be understood that China, Japan and the US are the major markets for products of Merck in terms of annual revenue. Merck’s international revenue has been increasing over years which was about 30% in previous decade rising to about 56% in 2019. Such an increase in international revenues can be attributed to ageing population worldwide and growing therapies awareness. Japan and China have been main sources other than developed Europe and the US as ageing is a major factor governing high drug sales in those countries. [66: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [67: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Merck’s consumers include doctors, hospitals, governments, public health agencies, benefit management companies, welfare companies, business corporations, pharmacies, and patients (in case of the US). Thus, Merck constantly seeks support from public health and welfare groups, governments, society and pharmacies, data mining and business analytic firms along with public health officials in order to be informed ongoing changes in the public health as well as in order to obtain necessary permissions. Data collection, data analysis, data analysis of inside manufacturing process as well as data collection from R&D labs, data from pre and post clinical trials and local patient data is the basic datum needed by Merck for conducting its daily business operations worldwide. Merck’s strategy is closely linked to developing new drugs while creating a value for the society by providing drugs to patients, committing themselves to eight of seventeen UN SDGs.[footnoteRef:68] [68: Merck & Co. (n.d.). MSD Corporate Responsibility Report: Sustainable Development Goals (SDGs). Retrieved from: https://www.msdresponsibility.com/reporting/un-sustainable-development-goals/]

As aforementioned, Merck, due to its nature of operating industry is exposed to definite and inevitable threats from various national governments in terms of pricing and policy. There are certain countries where using certain drugs is prohibited while in some countries there are restrictions on certain chemical composition of various drugs. Such policy imposes an additional burden on Merck to design market specific drugs or therapies so as to keep gaining revenues from such nations. Various trade restrictions also act as barriers for functioning of Merck, for instance cold war between the US and China. The US presidency in 2018 has enacted the Foreign Investment Risk Review Modernization Act (FIRRMA) which expands the scope of the Committee on Foreign Investment in the United States (CFIUS)’s watch on foreign investments especially creating panic among Chinese investors who withdrew their investments from the US firms.[footnoteRef:69] Under one instance, the US government was very specific about a platform called Patient Like Me, a widely used US patient portal.[footnoteRef:70] Patient Like Me was reviewed by CFIUS asking Patient Like Me to reject $100 million investment from a Chinese digital healthcare firm, iCarbonX,[footnoteRef:71] posing a threat to national security by sharing sensitive information of the US with Chinese investors. Having such stringent reviews in place has decreased Chinese investments in the US biotech firms by over 60% through 2019 when compared to same period in 2018, according to a news report.[footnoteRef:72] All in all, international sector has major impact on operations of Merck as it operates in more than 140 countries whose regulations are quite risky for its sustenance. [69: Congressional Research Service. (2020). CFIUS Reform Under FIRRMA. Retrieved from: https://fas.org/sgp/crs/natsec/IF10952.pdf] [70: Robbins, R., Herper, M., & Garde, D. (2019, April 4). U.S. forces health company to ditch Chinese investor, in sign of heightened concern over foreign influence. STAT News. https://www.statnews.com/2019/04/04/u-s-forces-health-company-to-ditch-chinese-investor-in-sign-of-heightened-concern-over-foreign-influence/] [71: Robbins, R., Herper, M., & Garde, D. (2019, April 4). U.S. forces health company to ditch Chinese investor, in sign of heightened concern over foreign influence. STAT News. https://www.statnews.com/2019/04/04/u-s-forces-health-company-to-ditch-chinese-investor-in-sign-of-heightened-concern-over-foreign-influence/] [72: Hancock, T., & Kuchler, H. (2019, July 8). Chinese VC spending on US biotech hit by security reviews. Financial Times. https://www.ft.com/content/6d647f7e-a13a-11e9-974c-ad1c6ab5efd1]

In a nutshell, external environment provides an opportunity for Merck to grow and expand to unseen markets as well as discovering new treatments from existing markets using their competitive intelligence (CI) teams. As Daft explained, any organization irrespective of industry needs to find a fit between internal structure and the corresponding external environment. Thus, it necessitates for Merck executives to seek new ways in order to adapt to the changing external environment. Merck along with its explicit drug development expertise and adapting nature could be competitive for long term in the sophisticated pharmaceutical industry.

A Harvard study suggests that adaptability is the main attribute that makes an organization competitive in the modern business world.[footnoteRef:73] It emphasizes on how internal environment of an organization can be a pathfinder for being competitive as employees are wizards for innovation and development. Daft has also emphasized on how internal environment is an essential attribute for an organization in order to be adaptable with the changes in the external environment.[footnoteRef:74] [73: Reeves, M., & Deimler, M. (2011). Adaptability: The New Competitive Advantage. Harvard Business Review, 89(7/8), 134–141 ] [74: Daft, R. L. (2015). Organization Theory & Design Twelfth Edition. Mason, Ohio: South-Western Cengage Learning.]

Michael Porter, in his book ‘The Competitive Advantage of Nations’, also discussed how an organization’s internal atmosphere contributes to create a long-term sustainable advantage in the marketplace.[footnoteRef:75] Any business including pharmaceutical industry, in order to stay up the game has to familiarize itself with constant evolving marketplace needs. An organization can be prospective, according to Miles and Snow Typology given the flexibility of its internal structure developing a change-ready culture inside the company. [75: Porter, M, E. (1990). The Competitive Advantage of Nations. The Free press. ISBN 0-684-84147-9. ]

In case of Merck, people are to be treasured as they open new windows for the company through their expertise and constant exploration. Change is the only constant in today’s world businesses and an explicit factor for organizations to understand in order to be competitive in the market. Thus, in order to keep up with continuous evolving environment and unpredictable challenges, internal environment comprising management, marketing, operations, finance, and other functional divisions altogether enhance the growth of Merck in the market. Merck has advantage of vast global presence as it operates in more than 140 countries and explicit information about ongoing changes in the market. Merck’s expertise in discovering and developing oncology drugs and vaccines gives them an upper hand to respond in any unpredictable circumstances in the field of medical science. Elsewhere, Merck also has definite threat due to generic competition from its peers in terms of their marketing activities and some exclusive drug developments at affordable prices. Loss of patent exclusivity (LOE), patent litigations, drug approvals, and pricing constraints create significant burden on operations of Merck.

Kenneth C. Frazier is the Chairman of the Board and the CEO of Merck succeeding Richard T. Clark since December 01, 2011;[footnoteRef:76] and substantially increased Merck’s investment on research including early research as well as on launching value creating products in the society. Merck has achieved several tens of FDA and EMA approvals creating blockbuster revenues over years under his regime such as M-M-R-II, Gardasil, Lynparza, Keytruda, and many more. Ken is known for injecting philanthropic initiatives into the 125-plus years history of Merck while committing to its mission of improving lives across the globe. [76: Businesswire. (2011, October 06). Merck Announces Retirement of Chairman and Former CEO Richard T. Clark. Businesswire. https://www.businesswire.com/news/home/20111006006018/en/Merck-Announces-Retirement-of-Chairman-and-Former-CEO-Richard-T.-Clark]

One of the Harvard study explained how good corporate governance is the key for achieving long-term goals as well as creating value for shareholders.[footnoteRef:77] Today corporate governance is a holistic function more than mere a corporate outlook on policy. Senior executives in any growing organization should proactively be a part of both strategic as well as technical initiatives taken by the company. Merck’s leadership team has been doing an applauding job in this prospect where they not only design strategies but also are proactive in executing and outperforming the expectations. Over years, Merck has been successful by achieving various breakthroughs in fields of oncology, neuroscience, vaccines, animal health and OTC drugs. As part of their growing strategy, Merck executives have divested their consumer healthcare business effective from October 1, 2014 as they began on a journey for being a pure research-based organization.[footnoteRef:78] Their planned spin-off of Organon & Co in 2021 also points towards their aggressive nature of forming a pure-science based company. Despite intense competition from peers through generic drugs, Merck has been successful in the by pure science-based activities such as discovery and manufacturing of patented drugs with revenues of approximately $47 billion in 2019. [77: Subramanian, G. (2015). Corporate Governance 2.0. Harvard Business Review, 93(3), 96–105.] [78: George, J. (2020, February 07). What to expect from new Merck spinoff, according to the CEO. Philadelphia Business Journal. https://www.bizjournals.com/philadelphia/news/2020/02/07/what-to-expect-from-new-merck-spinoff-according-to.html ]

Merck’s commitment to their vision of creating breakthroughs in patients’ lives is proven constantly through their explicit research and discovery of drugs while proactively contributing to UN SDG goals. Irrespective of four different operating business segments, research and development is carried out under single entity called as Merck Research Laboratories (MRL) headed by Roger M. Perlmutter. While the manufacturing which is the main source of raising revenues is operated as Merck Manufacturing Division (MMD) led by Sanat Chattopadhyay and Merck Animal Health Division is led by Richard R. DeLuca Jr. On the other hand, Frank Clyburn, and Michael T. Nally serve as Chief Commercial Officer and Chief Marketing Officer respectively. Julie L. Gerberding serves as Merck’s Chief Patients Officer while Robert M. Davis serves as their Chief Financial Officer. Steven C. Mizell is Merck’s Chief HR Officer, Dave Williams is Chief Information & Digital Officer who has led Merck through various technological advancements such as developing 3D printing work centers for expedite research and prototype designing. Jennifer Zachary is their legal counsel ensuring Merck’s policies and codes of conduct in place across the organization. Merck’s Board of Directors is a team of 13 individuals along with one member from Schering-Plough also is an added advantage as their opinion is critical for every initiative taken by Merck. Having expert and diversified executive team and Board allows Merck to perform with par excellence which in turn develops the trust in shareholders while committing in creating the value to the society.

With its wider market presence, Merck reported $10.21 billion, $8.55 billion, and $8.04 billion in selling and administrative expenses excluding (depreciation and amortization) D&A in 2019, 2018 and 2017 respectively.[footnoteRef:79] It shows Merck’s increased expenditure on marketing activities in order to acquire major market share especially for Keytruda and Gardasil in global markets. In 2015, it was attributed that infectious and respiratory disease drug market share was 75.84% and consumer health and vaccine market share rose to 76.11%. [79: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

According to a branding agency in the US, Pfizer was aggressive and spent just near $20 billion for branding followed by Roche spending $15.5 billion and a tie between Merck and JNJ with $13.3 billion on branding in 2016.[footnoteRef:80] Such a neck-to-neck branding activity induces an intense competition between Merck and its peers along with Merck’s blockbuster drugs, Gardasil and Keytruda. With its corporate strategy, Merck is seeking definite competitive advantages through its expertise in the market. It was reported that Merck spent about $95 million specially for DTC TV advertisements in 2019.[footnoteRef:81] [80: Brennan, Z. (2019, July 24). Do Biopharma Companies Really Spend More on Marketing Than R&D?. Regulatory Focus. https://www.raps.org/news-and-articles/news-articles/2019/7/do-biopharma-companies-really-spend-more-on-market] [81: Bulik, B. S. (2020, February 19). Keytruda. Fierce Pharma. https://www.fiercepharma.com/special-report/keytruda-top-10-ad-spenders-big-pharma-2019 ]

Ken, Merck’s CEO and Chairman has constantly reinforced R&D into work culture of Merck making it one of the most valuable assets in the market. Their R&D spending has boosted over years which near nearly $10 billion in 2019 more than any of its prime competitors. Their vivid strength of developing pipeline is fostering Merck into a rapid growth environment whose market capitalization has been increased by over 11% in 2019.[footnoteRef:82] [82: Phillpidis, A. (2019, November 18). Top 10 pharma companies of 2019. GEN Genetic Engineering & Biotechnology News. https://www.genengnews.com/a-lists/top-10-pharma-companies-of-2019/]

In 2018, global pharmaceutical revenues accounted for about $952.1 billion with major sales coming from oncology, immunology, and nervous system. Merck was the top fourth company by acquiring about 4.44% of market share in 2018. Top ten companies in the global pharmaceutical segment in terms of market share are Eli Lilly & Co (2.57%), Bayer AG (2.84%), AbbVie Inc (3.45%), Sanofi (4.11%), GlaxoSmithKline (4.19%), Johnson & Johnson (4.27%), Merck & Co (4.44%), Roche Ltd. (4.69%), Novartis (8.44%) and Pfizer Inc (5.6%).[footnoteRef:83] [83: Pharmaceutical Technology. (2020, January 24). The top ten pharmaceutical companies by market share in 2018. Retrieved from: https://www.pharmaceutical-technology.com/features/top-pharmaceutical-companies/]

Merck also began advertising directly to consumer (DTC) for Keytruda after its rival Bristol-Myers Squibb’s Opdivo advertisement. It had spent about $177.5 million in 2018 and $157.3 million in 2019 for advertising Keytruda, which was the very first time marketing an oncology drug on television. However, Merck had stopped further advertising of Keytruda in late 2019 given its brand name and awareness among the US consumers. Keytruda has raised about $11.2 billion in revenues globally during fiscal 2019. It is forecasted to raise $25 billion in revenues by 2025 by Wall Street analysts leaving behind Humira sales developed by AbbVie .[footnoteRef:84] Merck’s worldwide presence fetches the information advantage which allows Merck to design specific country marketing plans in order to cater those specific nations. Merck is aggressive on collaboration and licensing activities which brings an additional advantage of succeeding in global markets. [84: Hooper, C. L. & Henderson, D. R. (2020, March 05). FDA Shouldn’t Keep Safe Drugs off the Market. Wall Street Journal. https://www.wsj.com/articles/fda-shouldnt-keep-safe-drugs-off-the-market-11585175286]

Merck recently in October 2019, signed a partnership deal with the UK-based 4D Pharma in order for developing three Live Biotherapeutics based vaccines. Merck seeks active contribution to society by giving away about $2.7 billion worth of products free in providing basic healthcare for under poverty line population, $84 million through cash and grant contributions and many more. There is also an indicator on the corporate website which measures effectiveness and fraudulent violations if any made by the Merck during their promotional and other marketing activities. Merck’ performance is indicated through either number of warning letters or untitled letters received either from the Office of Prescription Drug Promotion (OPDP; previously known as the Division of Drug Marketing, Advertising and Communication (DDMAC) renamed in September 2011) or from the Advertising and Promotional Labeling Branch (APLB) of the FDA Center for Biologics Evaluation and Research.[footnoteRef:85] Since 2014 through fiscal 2019, number of warning letters issued either from OPDP or APLB are zero which shows their commitment to code of conduct and fair play in the market. Such initiatives talk for itself how Merck is striving to create a positive impact in patients’ lives as well as developing breakthroughs in medicines leaves Merck to succeed against its competitors. [85: Merck & Co. (n. d.). Ethics & Values: Sales and Marketing Practices. Retrieved from: https://www.msdresponsibility.com/ethics-values/sales-marketing-practices/ ]

A McKinsey study suggests that 35% of pharmaceutical sector’s profit and loss is attributed to their supply chain operations.[footnoteRef:86] Pharma industry is known for having silos between supply side and demand side whose inventory levels are double as that of industry best practices. Their lead times are often fifteen to sixteen times greater than that of other industries with higher level of obsolescence in their supply chain. Thus, in order to cater to needs of market, Merck has devised strategy for connecting the supply chain and demand together using advanced systems. According to Merck’s 2016/2017 corporate responsibility report, Merck has restructured its supply chain in order to save costs and improve capacity.[footnoteRef:87] Their main restructuring was aimed at developing their current manufacturing setups across all 80 distribution locations along with 20 internal and external sites. Redesigning their processes and connecting all 100 locations along their global chain as well as improving their corresponding supplier connectivity was part of their 2016 initiative. They were seeking improvement through employing various Lean and Six Sigma projects across their 100 locations. However, along with above mentioned sites, Merck also operates 148 manufacturing plants externally by producing about 10,300 various product sizes which need data in order to sync with their existing system.[footnoteRef:88] [86: McKinsey & Company. (2012, August 01). Pharma Manufacturing for a New Era. McKinsey & Company. https://www.mckinsey.com/industries/pharmaceuticals-and-medical-products/our-insights/pharma-manufacturing-for-a-new-era#] [87: Lopez, E. (2017, March 3). Why Merck & Co. turned to supply chain integration to save costs. Supplychain Dive. https://www.supplychaindive.com/news/merck-co-supply-demand-planning-manufacturing-integration/436496/ ] [88: ]

Major disadvantage of Merck’s previous system was their insufficient internal data which delayed production and delivery, thus increasing the lead times about ten to fifteen weeks in general. Such a backlash was also prevalent due to inefficient procurement and planning process, which was later spread to manufacturing, and delivery processes. Merck’s executives believed that such a backlash was caused due to unavailability of market demand information accurately on a timely basis which induced significant gap in the supply chain. Thus, after integration of supply chain and demand, global employees could see the actual finished goods available in the company which could be segregated according to the market needs. Henrik Frojdh, Supply Chain Planning Lead at MSD, said that the only way Merck saw transforming its system was by connecting systems as in providing a single-step solution by integrating demand and supply chain.[footnoteRef:89] Merck reinforced that concurrent planning is the key aspect of their new Enterprise Resource Planning system since 2016 which has helped them deliver great results through 2019 by catering to drugs improving patients’ lives which is their purpose of existence. [89: Cheater, A. (2017, February 16). MSD’s journey to remove silos in its end-to-end supply chain. Kinaxis. https://www.kinaxis.com/en/blog/msds-journey-remove-silos-end-end-supply-chain]

Ken, in 2019 announced that Merck is going to optimize their existing global real estate footprint in terms of revamping and shutting down some of their existing manufacturing plants. Merck has allocated about $1.2 billion as costs for shaking-up its manufacturing network.[footnoteRef:90] Merck is positive about its optimization plans which are expected to be finished by 2023 who has allocated $4 billion towards new investments along with Keytruda approvals across the globe. Thus, it can be noted that Merck is quite intuitive in analyzing its existing gaps seeking initiatives to mitigate in order to gain a long-term valuable proposition in the global pharma industry. [90: Manufacturing Chemist. (2019, May 2). Merck & Co manufacturing restructure risks half billion in factory shut-downs. https://www.manufacturingchemist.com/news/article_page/Merck_and_Co_manufacturing_restructure_risks_half_billion_in_factory_shut-downs/154248]

As aforementioned, capital and resource allocation along with R&D serve as the competencies for Merck making it a competitive global pharmaceutical organization. Merck has been reporting continuous increase in revenues since 2014 with nearly $47 billion in 2019, $42 billion in 2018, and $40.2 billion in 2017. Merck has total assets of $84.5 billion in 2019 and $82.7 billion in 2018 while total liabilities of $58.4 billion in 2019 and $55.8 billion in 2018. Elsewhere its competitors, JNJ had total assets of $157.7 billion and total liabilities of $98.3 billion[footnoteRef:91] and Pfizer reported total assets of $167.5 billion and total liabilities of $104.04 billion in 2019.[footnoteRef:92]. [91: Johnson & Johnson. (n.d.). Johnson & Johnson 2019 Annual Report. Retrieved from: http://www.investor.jnj.com/annual-meeting-materials/2019-annual-report] [92: Pfizer. (n.d.). Pfizer 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/317678438/files/doc_financials/2018/ar/Pfizer-2019-Financial-Report.pdf]

Figure 2: Current assets and current liabilities

Merck over years has seen increase in its revenues which appreciated total asset value over years depicted by above graph in figure 2. Table 1 below depicts current and quick ratios of Merck along with Pfizer and JNJ providing an overview of respective company’s ability to pay off their corresponding debts. Often referred as liquidity ratios, current and quick ratios exhibit an ability of a company to pay off its short-term debts through liquidating its assets indicating Merck is far ahead in its ability to manage its operations while clearing its current obligations.

Table 1: Liquidity Ratios

JNJ conducts business through pharma segment, consumer goods and medical equipment divisions while Pfizer also has Biopharma segment, Upjohn segment and consumer healthcare joint venture with GSK effective on July 31, 2019. Both JNJ and Pfizer have lucrative consumer health divisions which boosts their revenues; JNJ reported $82 billion in 2019 and $81.5 billion in 2018[footnoteRef:93] while Pfizer recorded $53.65 billion in 2018 and $51.75 billion in 2019.[footnoteRef:94] Elsewhere Merck has $46.84 billion in 2019 which is generated only through branded drugs showing Merck’s ability of pure sciences generating revenues through R&D, licensing, and partnerships. Thus, it exhibits Merck’s stronger position in immunology, oncology, vaccines as well as neuroscience making it a strong competitor in the global biopharma shown below by the grapy between pretax income and net profits. [93: Johnson & Johnson. (n.d.). Johnson & Johnson 2019 Annual Report. Retrieved from: http://www.investor.jnj.com/annual-meeting-materials/2019-annual-report] [94: Pfizer. (n.d.). Pfizer 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/317678438/files/doc_financials/2018/ar/Pfizer-2019-Financial-Report.pdf]

Figure 3: Pretax Income & Net Profits from continuing operations[footnoteRef:95] [95: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

Trendline in the above picture depicts how net income of Merck has been increasing from fiscal 2014 through 2019, according to their SEC filings. As mentioned earlier, Merck possess a competitive advantage as it generates profits from its cash generated through operational activities. Merck has been cautious in allocating capital for its various business initiatives specially since 2016 where they planned to restructure their manufacturing facilities while taking up new facilities for making Keytruda.

Below picture (Figure 4) also depicts cashflow of Merck through 2019 since 2014 fiscal showing it has been successful in managing its capital across the busines activities. All in all, it is significant that capital and resource allocation is an underlying competency possessed by Merck in order to succeed in globally by using effective actions to conduct R&D and transforming into pure science company.

Figure 4: Cashflow performance

Earlier in the organizational strategy, this paper analyses Merck’s global strategy as a prospector in terms of active discovery and development of novel drugs treating new known diseases and developing breakthrough vaccines. Innovation has been a driving force for Merck since its founding in late 19th century which in order to be a leader in biopharma industry is necessary. Merck’s purpose of existence is to improve lives which it has been committed to since years by developing drugs and vaccines to fight against various diseases and in turn contributing to the society. [footnoteRef:96] [96: Merck & Co. (n.d.). Research and Products. Retrieved from: https://www.merck.com/research-and-products/]

Not only developmental activities, but also Merck is vibrant in conducting early discovery and research, pre and post clinical trials by collaborating and licensing through various strategic initiatives such as Merck Global Health Innovation Fund (GHI).[footnoteRef:97] Merck has also pledged with other global competitors in fighting against the AMR through sponsoring research by donating to AMR Action Fund.[footnoteRef:98] Expense on R&D includes clinical research, discovering, testing, and post release tests of new drugs as well as exploration for existing drugs for any new possibilities. Merck is aggressive in acquiring if any biotech firm is value creating in terms of discovery and development of drugs and therapies; it usually conducts research through its own R&D expertise, strategic partnerships, collaboration and licensing agreements, and various sponsorship programs. [97: Merck & co. (n.d.). Global Health Innovation Fund: Leadership in Digital Health Investing. Retrieved from: http://www.merckghifund.com/] [98: Merck & Co. (2019, October 1). Working together to create a sustainable market for antibiotics. Retrieved from: https://www.merck.com/stories/working-together-to-create-a-sustainable-market-for-antibiotics/ ]

Figure 5: Merck’s R&D expense trend through 2019

According to Merck’s SEC filings, currently immuno-oncology, neuroscience, vaccines, and respiratory diseases are major fields research and development is being done. Merck’s pipeline activity is updated every quarter on their corporate website which as of July 31, 2020 has about 94 candidates inclusive of phase 2, phase 3 and under review candidates.[footnoteRef:99] Some of 94 are developed as monotherapies, while some are developed to be used in conjunction with Keytruda in certain carcinoma treatments and others are developed in collaborations. (KN524) (US) LENVIMA® MK-7902 and (NCCH1508/REMORA) (JPN) LENVIMA® MK-7902 are two candidates out of 94,[footnoteRef:100] of which the FDA had asked for Complete Review Letter (CRLs) from Merck for an explicit study of those two candidates as previously submitted reports during trials were lacking certain details denying approval. [99: Merck & Co. (2020, July 31). Research & Products: Pipeline. Retrieved from: https://www.merck.com/research-and-products/product-pipeline/] [100: Merck & Co. (2020, July 31). Research & Products: Pipeline. Retrieved from: https://www.merck.com/wp-content/uploads/sites/5/2020/08/Merck-Public-Pipeline.pdf]

Out of nearly 71,000 employees worldwide, Merck employs one-fifth in research activities which also includes 3D-prinitng workspaces for developing and designing tissue or cell prototypes and hard-to-find manufacturing parts. Merck is the member of the trade group in the US, PhRMA (Pharmaceutical Research and Manufacturers of America) who spent about $79.6 billion in R&D in 2018 with about 78% expenditure inside the US while all the PhRMA members together spend about 19.2% of their consolidated revenues against R&D yearly. Acquisition of Pelton, collaboration with 4D Pharma in 2019 is facilitating Merck to succeed in having cutting edge technology for expedited discovery and development of novel and lucrative drugs. Merck has eight essential locations for conducting its R&D which are in Boston (MA), Cambridge (MA), Kenilworth (NJ), Rahway (NJ), South San Francisco (CA), Upper Gwynedd (PA), West Point (PA) and London (UK).[footnoteRef:101] In a nutshell, it marks Merck’s culture of engaging with global employees and exploiting their core competencies in bringing value to their brand by active discovery and sale of drugs by inducing a positive and healthy competition in the global marketplace. [101: Merck & Co. (n.d.). Research & Products: Discovery & Development. Retrieved from: https://www.merck.com/research-and-products/discovery-development/]