MERCK AND CO., INC.

MERCK AND CO., INC.

NAME OF STUDENT

DATE OF SUBMISSION
MERCK AND CO., INC.

Introduction:
Merck & co. is one of the leading pharmaceutical firms operating globally. The company

having headquartered in Rahway, New Jersey, has global network of providing effective

medicines. Merck and company has third largest market capitalization and claimed themselves as

the world’s second largest medicine manufacturers and R and D specialists in the respective

field. The company is not only famous due to their quality products but also made their name in

providing medical and health care manuals and other related services. The company has

undertaken many initiatives in the field of research and development in the field of medicines to

bring innovative changes and effective procedures to cure many of the diseases. The company is

not only involved in providing effective solutions to humans but also has its distribution to deal

with the matters of animals and their diseases. Throughout the life cycle of the company, the

research department has contributed a lot to make the life of people easy by doing

experimentation in the field of medical sciences, thus company has competitive edge in fulfilling

corporate social responsibility and providing effective services to deal with the poor community

of people.

Current position of the company:

Political factors:

It can be said that political stability is one of the major factor, which can affect the profitability

of the organization. As Merck is operating in many parts of the world, if the relation between the

countries is deteriorated, it can affect the operations and profits of Merck drastically.
MERCK AND CO., INC.

Furthermore, it is possible that the some political parties and organization are against the Merck

because of its impact on the organization, which might further affect the operations of Merck.

Economic factors:

The economic environment is also a critical factor in sustaining the competitive advantage, if the

economic condition is improving it is highly likely that people spends more on their health care,

which ultimately increases the profitability of the medicine producing companies. Furthermore,

the positive economic conditions will also allow Merck to incur more expenditure on research

and development in order to improve the formulation and effectiveness of their products. As

Merck is operating in the industry in which the R&D expenditure is considered the lifeblood of

the organization, and the improved economic condition are very important for these

expenditures.

Social factors:

Social trends are also important for Merck in order to carry its profitability for long-term. Now

days the citizens of developed nations are increasingly spending on their health care issues,

which might be very beneficial for the pharmaceutical companies. Furthermore, the customers

also expects from the pharmaceutical developers to operate in such a manner, which is positive

for the society, and to develop strategies, which considers both profitability of the organization

along with the positive social footprints.

Technological factors:

The technological environment is also very crucial for the manufacturing industry especially for

the pharmaceutical manufacturing industry. If obsolete technology is used in the production of

the products, it is highly likely that the costs will be substantially high because of the increased
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costs of maintenance of the machinery; in addition to this, the economies of scale will also be

lost due to the fewer quantities of the medicines produced by the old machineries. On the other

hand, the quality of the medicine produced by the outdated machinery will be also not up to the

mark, which can directly affect the profitability of the Merck. Apart from the financial

implications of the old-fashioned machinery, the environmental impact is also negative of this

machinery, which can damage the reputation of Merck.

Environmental factors:

In the modern business environment, the environmental impact of the organization plays an

important in building the reputation of the organization, if the environmental impacts are

negative it is possible that the company will lost its place from the market. Now a days, the

number of green customers are increasing which are critical about the environmental footprints

of the company, if the environmental impact of Merck is negative, the green customers boycotts

the product of the company. Particularly for the pharmaceutical manufacturing companies like

Merck, the environmental factors are so important because of their direct impact on the life of

animals and human.

Legal factors:

It can be said that Merck is operating in the sector in which the interest of regulatory authorities

is very high because of the sensitivity of their products. Several new laws and regulations are

introducing day by day primarily to address the quality issues of the medicines produced by the

companies. Merck will have to comply with these strict laws and regulations in order to avoid

substantial fines and penalties. Furthermore, failure to comply with these laws and regulations

will result in the significant negative publicity that ultimately decreases the profitability of the

company.
MERCK AND CO., INC.

SWOT analysis:
Strengths:

Management Expertise:

It can be said the management of Merck is competent enough which can turnaround the

performance of the company, Merck have one of the best research and development team in the

pharmaceutical industry, which can be said as one of the biggest strength of the company.

Furthermore, the top management of Merck is very enthusiastic and keen to grow the operations

at an even increased rate.

Availability of Finance:

As Merck is one of the largest player in the pharmaceutical industry it can be assumed that the

availability of the finance is high. Merck expands drastically in the previous year that indicates

that it has large amount of reserves available to undertake the required capital and revenue

expenditures. Moreover, it can be argued that Merck can also get new finance due to positive

growth prospects and extraordinary performance in past which can be consider as one of the

biggest strength of Merck.

Weaknesses:

Violation of Rules:

In the past years the Merck breaches various rules and regulation imposed by the government

directly which resulted in the bad publicity of the company in Media, which had slows-down, the

pace of growth of Merck. On the other hand, these breaches also result in substantial cash

outflows, which had affected the financial performance of the company.

Liquidity:

The liquidity position of Merck appears to be poor; this can be considered as one of the main

weakness of Merck. This is an alarming situation for Merck; poor liquidity might have very

negative consequences for Merck. As the Merck is considering the development of a new

component, which will be used as a remedy for river blindness, it is possible that the proposal to

undertake the research and development regarding this disease might not be approved due to this

poor liquidity position of Merck.

Opportunities:

Relocation of the plant:

Nowadays almost all the manufacturing giants are pursuing this strategy to relocate the

production facilities to developing countries. Shifting the plant to developing countries seems to

be profitable for the manufacturing industry because the skilled labor is available in those

countries at very lower rates and the production overheads are very low in the developing

countries as well. In addition to this, the government of those countries also gives severe tax

reliefs, which increases the profitability of the companies drastically.

Mergers and Acquisitions:

In the recent times, the various manufacturing companies also heavily use these strategies. There

are considerable opportunities available for Merck because of mergers and acquisitions, Merck

can get substantial economies of scale by combining the marketing, administrative and R&D

functions of its subsidiaries. Additionally, the range of product offering of Merck will also be

increased due to the acquisition of companies operating in the same sector and the competition

will be reduced as well.

Threats:

Increased Competition:

As the pharmaceutical manufacturing industry is growing at a rapid pace, the competition is also

increasing with a healthy rate as well. The market share of all the companies operating in the

pharmaceutical sector is decreasing due to this heavy competition, almost all the industry giants

are fighting for the market share and running aggressive marketing campaign against each other.

Increased Laws and Regulations:

The government and regulatory authorities are introducing new laws and regulations for the

pharmaceutical manufacturers to which they have to adhere, the newly implemented laws and

regulations are very strict and complex in nature. Failure to comply with those stringent rules

might result in the severe fines and penalties which Merck have to pay which can reduce its

profitability and the development of new drugs and medicines will also be in danger in case of

any non-compliance. On the other hand, extreme non-compliance might even result in the

cancellation of operating license of Merck that can surely affect the going concern status of the

company.

The problem:
The main problem of the case is the decision that has to be taken by Vagelos, working as a head

of Merck research laboratory in relation to the proposal that has been received by him from the

senior researcher C.Campbell. The proposal is to start an initiative of research work related to the

compound called ivermectin, an ant parasitic compound, which was previously investigated and

used in relation to the animals. Favorable results are obtained and now Campbell is of the view

that the proper experimentation and research is required to identify that either this compound are
MERCK AND CO., INC.

used to cure the disease in humans called river blindness. a dangerous disease that is found in

developing or third world countries, caused many of the people to commit suicide after sever

itching and painful sufferings.

Campbell is of the view that this initiative that has tendency to cure the disease called river

blindness, for the outcome to be a meritorious one, Merck has to do plenty of research work and

make suitable analysis under the hypothesis that Campbell has composed. For this purpose huge

research and expenditure, cost needs to be incurred to conclude the effectiveness of medicine.

Trials are also required in those areas that are affected by the disease. The point of concern here

is whether the people for whom the initiative would be taken afford that medicine. Alternatively,

all the efforts of the researchers go in vain. Even the success story would not promise fruitful

returns to the company. The executive of the company needs to decide that either the research is

undertaken or the proposal is not worth to peruse.

Alternative strategies:
Alternative: 1- Merck should perform the research, in order to analyze the market trend

and customer behavior. Start research for river blindness.

Pros

1- It will enable the company to dig deeper into the root cause of the problem, allowing

it to develop a deeper understanding about the disease and then the cure.

2- It will allow the company to test the medicine effect on the focused group that will in

turn help the management to deduce the actual results and thus a proper medication.

3- It will enable the company to develop a medication with proper features, supported by

extensive market Research.

Cons

1- The market research will incur enormous cost without any certain results.

2- It will make the company lag behind the competition due to extensive number of

years required to introduce the medications.

3- The results are totally based on trial and error technique thus ascertains the factor of

ambiguity in the findings.

Alternative: 2- Merck should not at first pursue the market research but create a market

awareness through aggressive advisements and campaigns related to the formula and

expected results of that formula, launch that ivermectin for animals first, closely analyze

the public reaction after the awareness campaign about the medicine and continue the

research exercise based on initial results.

Pros

1- It will secure the cost of company along with hedging the risk of failure of medication

in the market.

2- It will enable the company to create awareness in the market, hence will create a

brand image and brand awareness in the market. Thus will allow the company to

create “top of mind” place in the consumer mind, mitigating the risk of lost market

share due to intense competition.

3- It will offer an in-depth analysis of the customer base, the buying behavior and

response towards the camping, thus allowing the company to deduce the results

without investing heavily into the cure.

Cons

1- The campaign will be run on small scale and for short period, making it difficult for the

company to gauge the right accurate results.

2- The campaign might not attract the right target market that may make the result

ambiguous.

3- It might create a sudden run on medial stores for the cure, and its absence might transfer

the patients to the competitors.

Decision Criteria

Factors Alternative:1 Alternative:2

Brand Awareness 1 2

Market share 1.5 2

Risk Reduction 1 2

Better implementation plan 1.25 2

Strong identification of the 2 2.5

problem and implementation

plan

6.75 10.5

Action plan:
After the successful alternative selection, it is necessary to make effective arrangements to gear

up the research work based on the alternative selected.

The following steps should be considered by the company in order to successfully continue with

the option two.

- Evaluate the favorableness and the expected outcome from both the alternatives and

proceed with the best.

- Choosing alternative number 2, based on the decision criteria, effective planning is

required to conclude the appropriate results.

- The company to successfully implement the strategy should use the research specialist

team.

- Directional advertisement and aggressive campaign to create awareness is required.

- Using the brand name of the company, free samples can also serve as an effective

measure to make the people familiar with the product.

Conclusion:
The company has favorable reputation in terms of doing CSR activities, company has

undertaken many initiatives for the people and has favorable image in respect of R and D

activities. The company should perform the research but not immediately when the medicine for

curing animal’s disease is ready to be tested in the market. The company should perform the

research after considering the following alternatives. For now, company should focus on

bringing the already manufactured and tested compound for the treatment of animal’s disease

and continue with the awareness campaign of the human compound as an initial step for future

research in this regard.

Executive summary:
The case study deals with the discussion regarding the persuasion of the proposal

presented by Campbell, the laboratory head of parasitology department. After the success of the

ivermectin compound that has been used to treat the animals, Campbell wants to do extensive

research to conclude it either the compound is safe to use by humans as well. The Merck has to

take decision that is ethically valid to make medicine for the people who are in need or helpless

but considering the profitability aspect of the company they must evaluate their decision of

research considering the financial feasibility of the company as well i.e. the research should

bring some kind of benefit to the company. The options available with Merck are either to

continue with the making of Ivomec, the animal medicine or to do research to find out the

success opportunity in case of ivermectin. The analysis of the case indicates that there is no

profitable market that could easily afford that drug but in order to fulfill the social responsibility

that the company owns towards the poor countries, the company has to continue with the

research activity to cure river blindness. The alternatives are described in the case and

appropriate one is selected to carry out the research activity and maintaining financial feasibility

of the proposal as well.

Appendices:
MERCK AND CO., INC.

Appendix 1:

SWOT analysis:

Strengths Weaknesses
 A company trusted by people,  Faced some of the
leading pharmaceutical controversies during past
company. related to few medicines.
 Large R and D facility  Low liquidity of the company.
 Strong market having  High research and
competitive edge. development cost.
 Gained customer’s loyalty  Charged for violating legal
laws
Opportunities Threats
 Company has the ability to  Intense market
bring innovative products.  Competing with the
 Can work for CSR, as the competitors with innovative
company has favorable strategies.
customer image.  Dealing with laws and
 Relocation and diversification regulations.
opportunities with the
company
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Appendix 2:

PEST analysis:

enivironmental and
political factors
economic factors

pest

technological
social factors
factors