Merck: Open for Innovation ?
MERCK: OPEN FOR INNOVATION?
Founded in 1891 as an American subsidiary of his German namesake, Merck was once considered the “undisputed king of the pharmaceutical industry with ground‐ breaking drugs”(The Chief Executive 2003). But for the last decade, Merck has gone through a period of stagnation; it began to lose exclusivity patents on blockbuster drugs and has witnessed Pfizer’s rise to top place in the industry.
It seemed now that internal R&D that was once the company’s main asset would not be enough to compete in an industry defined by innovation. Thus the recent 2009 merger with rival Schering and Plough could be the beginning of a new take by Merck.
Could Merck prosper with an open innovation strategy?
Structure of the pharmaceutical industry An analysis of the industry is essential to gain a better insight on how Merck is operating and how well it is performing The structure, conduct, performance model was developed by economists in the 30s.
Its aim is to explain the different performances by companies within the same industry.
It claims the industry structure affects the firm conduct, which in turn affects the performance of the company. There are four main type of industry structure with different characteristics.
In liaison with the SCP model Michael Porter developed the Five Forces model in which five forces need to be considered while analysing the industry. The first one is the Threat of entry determined by entry barriers, which are obstacles that determine how easy one can enter a market. A high entry barrier signifies a high profitability. The high barriers are usually due to high costs of gaining and maintaining a place in the industry (infrastructure, government and international trade regulations).
For the pharmaceutical industry the threat of entry is quite low due to the high costs of
R&D
Founded in 1891 as an American subsidiary of his German namesake, Merck was once considered the “undisputed king of the pharmaceutical industry with ground‐ breaking drugs”(The Chief Executive 2003). But for the last decade, Merck has gone through a period of stagnation; it began to lose exclusivity patents on blockbuster drugs and has witnessed Pfizer’s rise to top place in the industry.
It seemed now that internal R&D that was once the company’s main asset would not be enough to compete in an industry defined by innovation. Thus the recent 2009 merger with rival Schering and Plough could be the beginning of a new take by Merck.
Could Merck prosper with an open innovation strategy?
Structure of the pharmaceutical industry An analysis of the industry is essential to gain a better insight on how Merck is operating and how well it is performing The structure, conduct, performance model was developed by economists in the 30s.
Its aim is to explain the different performances by companies within the same industry.
It claims the industry structure affects the firm conduct, which in turn affects the performance of the company. There are four main type of industry structure with different characteristics.
In liaison with the SCP model Michael Porter developed the Five Forces model in which five forces need to be considered while analysing the industry. The first one is the Threat of entry determined by entry barriers, which are obstacles that determine how easy one can enter a market. A high entry barrier signifies a high profitability. The high barriers are usually due to high costs of gaining and maintaining a place in the industry (infrastructure, government and international trade regulations).
For the pharmaceutical industry the threat of entry is quite low due to the high costs of
R&D
Bibliography: Johnson &Johnson, 2011, Merck and Johnson & Johnson Reach Agreement on Distribution Rights for REMICADE® and SIMPONI®, Available online at pdf Date of access 25/11/12 De Moraes, A. (2013), Compilations Case Studies on Strategic Management, McGraw‐Hill. Kenneth C. Frazier, 2012, Letter from the Chairman of the Board for 2012 Annual Meeting Marketing Mixx, 2012, Merck SWOT Analysis, Available online at http://marketingmixx.com/marketing‐basics/swot‐analysis‐marketing‐basics/153‐