Merck - Strategic Plan.docx

STRATEGIC PLAN 1
Merck & Co – Strategic Plan
Srilakshmi Reddy Kotha
MBA 684 Business Strategy
Dr. Mark Lee
Trinity Western University
December 04, 2020

STRATEGIC PLAN 2
Contents
Executive Summary........................................................................................................................ 4
Vision and Mission ......................................................................................................................... 5
External Environment ..................................................................................................................... 6
Industry Sector ............................................................................................................................ 7
Raw Materials Sector .................................................................................................................. 8
Human Resources Sector ............................................................................................................ 9
Financial Resources Sector ....................................................................................................... 10
Market Sector ............................................................................................................................ 10
Technology Sector..................................................................................................................... 11
Economic Sector ....................................................................................................................... 12
Government Sector.................................................................................................................... 12
Sociocultural Sector .................................................................................................................. 13
International Sector ................................................................................................................... 13
Internal Environment .................................................................................................................... 14
Management.............................................................................................................................. 15
Marketing .................................................................................................................................. 16
Production/Operations............................................................................................................... 17
Finance/Accounting .................................................................................................................. 18
Research & Development.......................................................................................................... 19
Market Analysis ............................................................................................................................ 21
Positioning the organization in marketplace ............................................................................. 21
Points of Parity.......................................................................................................................... 22
Points of Difference .................................................................................................................. 23
Market Size and Growth ........................................................................................................... 25
Target Market and Customers................................................................................................... 26
Major Competitors and Participants.......................................................................................... 28
Recommendations ..................................................................................................................... 31
Products and Services................................................................................................................ 32
Long-Term Goals & Objectives.................................................................................................... 35
Strategic Options, Analysis, and Choices Made ........................................................................... 41

STRATEGIC PLAN 3
Strategic Options....................................................................................................................... 41
Strategic Analysis...................................................................................................................... 51
Strategic Choice Made .............................................................................................................. 54
Action Plan.................................................................................................................................... 57
Five-Year Pro-Forma Operating Budget ...................................................................................... 61
Measurement and Evaluation of Performance .............................................................................. 63
Recommendation .......................................................................................................................... 64
Bibliography.................................................................................................................................. 65

STRATEGIC PLAN 4
Executive Summary
Merck & Co., also known as Merck, Sharp & Dohme (MSD) outside the US, Canada,
and Puerto Rico is one of the top ten globally recognized biopharmaceutical organizations in the
world. Operating by committing to its mission of uplifting patients’ lives globally, Merck
conducts business in more than 100 world countries. Undergoing major business developments
such as merging with Schering-Plough in 2009, Merck has grown into a humungous organization
with focus on areas on oncology, hospital acute care, infectious diseases, cardio-vascular
disorders, diabetes, vaccines, and animal health. Although, early 21st century was not fruitful for
Merck, it had retained its position as an eminent global company by undergoing major structural
reforms in 2010 acquiring 4.5% global market share in the biopharma sector. Pfizer, Johnson &
Johnson, GlaxoSmithKline, Novartis, Roche, Sanofi, Bayer, Gilead, and Amgen are some of
prime competitors for Merck. Pfizer and Johnson & Johnson are considered as immediate peers
for comparison throughout this paper as both of them are listed on the NYSE.
This report initially provides an insight on Merck’s internal abilities by contrasting with
industry best practices as well as comparing it with peers. A detailed internal analysis is
presented analyzing its historical business activity and recent business reforms. In addition, a
detailed external environmental analysis is also performed as part of investigating Merck’s
responsiveness with changing opportunities and threats from the global industry. An internal
factor evaluation and external factor evaluation (IFE & EFE namely) are also presented which
are contributing for the growth of Merck conducive to its mission as well as committing to
shareholders.
Second section of this report contains an intricate market analysis conducted to map
Merck against its competitors by understanding its peculiar advantages over peers in the
industry. Revenue distribution as well as various customer-specific attributes are also discussed
which highlight Merck’s attitude towards catering different needs in different market segments.
Product positioning as well as points-of-parity and points-of-difference are also studied in detail
which led to discover precise competitive advantages possessed by Merck. Financial highlights
are also provided as and when required through internal, external, and market analyses.
Lastly, very essential part of this report is the newly devised strategic plan for next five-
years performance of Merck. This part of report is divided into five components: developing
vision and mission; long-term goals & objectives; strategic options, strategic analysis, &
strategic choice made; action plan; five-year pro-forma budget; and measurement & evaluation
for afore designed strategic plan. Five strategic options are stipulated which are devised
depending upon Merck’s current strengths and weaknesses in line with the opportunities and
threats expected from the external industry environment. Strategic plan designed consists of two
integration strategies by undergoing upstream and downstream integration; two intensive
strategies fostering product portfolio as well as research pipeline; and one diversification strategy
by expanding into related consumer healthcare market. With a sudden outbreak of novel
COVID-19 virus, Merck is expected to shift major capital resources in developing two vaccines
along with an antiviral oral drug for tackling SARS COV-2 in the fiscal years 2020 and 2021.
Upon performing financial, market and external analyses along with Merck’s business activity, it
can be noted from this report that 2023 through 2025 can be vast successful years for Merck with
an overall profitability boost up to 15% by 2025.

STRATEGIC PLAN 5
Vision and Mission
Developing clear and precise vision and mission statements, is the first and foundational
step in the comprehensive strategic management model, which enables company’s managers and
executives to focus towards the shared vision of development of their organization. As David
emphasized, vision and mission set out a direction for the company allowing it to grow and
achieve its futuristic goals.1
Currently, Merck has its vision statement as ‘to make to make a difference in the lives of
people through our innovative medicines, vaccines, and animal health products. We are
committed to being the premier, research-intensive biopharmaceutical company and are
dedicated to providing leading innovations and solutions for today and the future’.2 While
mission statement of Merck as noted in their SEC filings is, ‘to discover, develop and provide
innovative products and services that save and improve lives around the world’.3 From both
vision and mission statements of Merck, it can be noted broadly that improvement of patients’
lives is their ultimatum with patients, respect for people, ethics and integrity, and innovation and
scientific excellence as their primary value for existence.
As David text emphasizes, vision statement should answer the question: “ What does
business want to become” while mission statement should provide the reason for their business’s
existence. In other words, vision should be futuristic while mission should be noting behavioral
aspect referring to their present and near-future pathway guidance to all the partners of the
company (employees, shareholders, executives, suppliers, and other stakeholders). Operating in
an extremely competitive industry, it is advisable for Merck to reinstate its value among all its
stakeholders while being imperative in designing new vision and mission statements ensuring its
long-term development in the global pharma industry. After a comprehensive study about
Merck’s organizational structure and functioning, internal and external environment, and its
market and financial performance, a new vision and mission statements are formulated as below:
Merck’s new statement of vision is “to be the preeminent biopharmaceutical
organization across the globe through focused-research and drug development, thereby
positively impacting lives of patients, while being people-centric”.
While Merck’s new statement of mission is “to discover, develop, and deliver
breakthrough medicines to global cancer and cardio-metabolic disease patients through our
sophisticated research and technology, by adhering to high-quality and industry best-practices,
while committing ourselves to partners and greater society”.
Aforesaid vision and mission statements reinstate Merck’s commitment not only for
scientific innovation but also enforce Merck to practice safer measures while developing drugs
as well as ensure integrity in all its business activity. Being one of the top ten pharma companies
across the world, Merck operates in the complex external environment with sophisticated supply
chain and distribution network. Not only drug discovery and delivery but also involving through
an ethical activity while fighting competition and filing for patent exclusivity is also a mandatory
1 David, F. R., & David, F. R. (2013). Strategic management: Concepts and cases: A competitive advantage
approach.Pearson.
2 Merck & Co Mission, Vision & Values. (n.d.). Retrieved from: https://www.merck.com/company-overview/
3 Merck & Co Mission, Vision & Values. (n.d.). Retrieved from: https://www.merck.com/company-overview/

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concern that Merck should constantly strive in order to succeed in long-term. Thus, following
five core values: innovation, integrity, integration, perseverance, and transparency can be the
prime drivers in strengthening Merck’s outreach in the market for long-term success.
Innovation is the key driver for Merck’s sustenance indicating that every business action
taken by Merck should be of value spurring their journey towards achieving its mission. Integrity
is the value that ensures Merck’s commitment to society or serving patients’ in terms of figuring
out legit ways during discovery and development processes and promoting fair play among
competition. Integration is Merck’s commitment towards its people as well as customers in terms
of satisfying their needs while discovering drugs, ensuring safer workplaces and work
environment in turn creating value for its own people. Lastly, perseverance and transparency
allow Merck to continue current practices in order to continue its growth as a prospector
(according to Miles and Snow typology). Conducting business while perpetrating to aforesaid
core values allow Merck to deliver increased value in society spurring its long-term
sustainability.
External Environment
Daft defined external environment as the group all the factors that have an indirect or
direct, either short-term or long-term impact on the company’s operations in a specific industry
or in the overall market.4 External environment analysis enables strategists to understand
upcoming opportunities and prevalent threats in a specific sector which directly impact specific
organization in terms of competitiveness, performance, and brand value.
Table 1. External Factor Evaluation (EFE) matrix of Merck
Key External Factors Weight Rating Weighted Score
Opportunities
Increased global healthcare expenditure 0.1 3 0.3
Aging global population 0.1 3 0.3
Increasing chronic illness patients globally 0.1 2 0.2
Global supply chains expansion 0.02 2 0.04
Advance tech for clinical trials & patient monitoring 0.1 4 0.4
Increasing industrialization 0.1 2 0.2
Collaboration for R&D, and production 0.15 4 0.6
Threats
Corporate tax rate & import duties 0.05 2 0.1
Increasing generic competition 0.1 3 0.3
Patent litigations0. 0.02 2 0.04
Uncertainty in supplier & distribution channels 0.03 2 0.06
Trade restrictions 0.03 3 0.09
Government & policy restrictions on pricing 0.1 4 0.4
Total 1 3.03
4Daft, R.L., & Armstrong, A. (2015). Organization theory and design (3rd ed.). Toronto, ON: Nelson Education.

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Source: self-made according to EFE guidelines from David text
David text explains how organizations either act defensive to react or adapt aggressively
through strategy formulation, giving them the early mover advantage while mitigating possible
risks.5 External environment can be broadly divided into five categories: economic; socio,
cultural, demographic, and natural environment; political, government, and legal; technological;
competitive forces.6 All aforesaid factors create definite set of opportunities and threats for any
business operating posing a significant impact on the business performance. Table 1 above,
enlists some of the major opportunities and threats posed against Merck from its external
business environment, computed through External Factor Evaluation (EFE) framework. Thus,
for Merck to succeed, it should actively analyze the external business environment and adapt
accordingly, in order to maintain its leading position in the industry ahead of aggressive
competitors.
Industry Sector
By nature, biopharmaceutical sector is highly capital intensive and regulated industries
with an aggressive investment towards drug discovery and development. It was estimated about
$190 billion was spent by global pharma companies towards R&D alone in 2019 which is
expected to spur by 10-20% in next five years. However, increasing cases of anti-microbial
resistance (AMR) is posing an immediate threat to all the drug discovery firms globally who are
now finding ways to discover antibodies to fight the superbugs caused because of AMR.
According to a report by the National Health Institute, the CDC estimated that the cost of
antimicrobial resistance is $55 billion every year alone in the United States where $20 billion for
health care and about $35 billion is for loss of productivity.7 If AMR could cost the US alone an
additional spending of $55 billion, its impact across Europe, Asia, Latin America and Oceanian
nations is unknown8 indicting an immediate emergency. Under such world circumstances, Merck
as one of the top biopharma companies in the world has partnered with various health institutes
and the WHO in combating the adverse impact due to AMR by conducting partnered research
through AMR Action Fund,9 thereby indulging in a sustainable competition.
As a pioneer in the oncology and developing vaccines, Merck today has its basket full of
blockbuster cancer treating drugs such as Keytruda, Gardasil & MMR-II raising tens of billions
in annual revenues since 2017. Merck, from time-to-time has involved itself in mergers and
acquisitions strengthening its global position by catering to specific needs of various
international markets such as Japan, Europe, and China. Some of the preeminent M&As such as
acquisition of Sharp & Dohme in 1953, merging with Schering Plough in 2009, selling
approach.Pearson.
approach.Pearson.
7 DadgostarP. (2019). Antimicrobial Resistance: Implications and Costs. Infection and drug resistance,12, 3903–
3910. https://doi.org/10.2147/IDR.S234610
8 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.
9 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/

STRATEGIC PLAN 8
blockbuster drugs such as Clarinex, Claritin, Vytorin, and Temador for brain tumor led to the
unprecedented journey of Merck in both US and international markets. With the recent
acquisition of Peloton Therapeutics, Immune Design, and Themis show that Merck is taking a
different approach in building its business by converting itself into a pure science-based research
organization. Under such strategic imperative, Merck has also announced its new spinoff of its
trusted legacy brands, biologics, and women healthcare units into a new company called as
Organon & Co., which is expected to complete by 2021.10 In addition, since December 2019,
world is startled by the newly discovered SARS COV-2 virus causing millions of deaths
globally. Merck announced its active developing process of two vaccine candidates for fighting
COVID-19 along with an oral antiviral drug11 which is expected to set Merck’s market share at
par from many of its competitors. With such wider portfolio of research candidates in its
pipeline, Merck is all set to compete expecting to secure increased market share. Having said
that, its prime competitors such as Pfizer, Johnson & Johnson (JNJ), GlaxoSmithKline (GSK),
AbbVie, Abbott, Roche, Sanofi, and Novartis are also globally established organizations actively
competing for increased market share, in turn challenging Merck’s quest for developing
breakthrough drugs in order to survive and succeed in the fierce competition.
Raw Materials Sector
Figure 1. API suppliers for US pharma
Data Source: Center for Drug Evaluation and Research, US Food and Drug Administration
10 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
11 Merck & Co. (2020). MSD 2019-2020 Corporate Responsibility Report. Retrieved from:
https://www.msdresponsibility.com/access-to-health/vaccines/

STRATEGIC PLAN 9
Pharma industry serves markets across the globe by procuring raw materials from all the
four corners of the world. Developing economies such as India and China are growing to be the
top providers of APIs for most of the US pharma companies marketed drugs. As shown by figure
1, most of the API manufacturing facilities are located in the US, Europe, India, and China
majorly procuring raw materials from respective economies. Merck operating in more than 125
world countries has major manufacturing setups in China, India and the US procuring solvents,
APIs, and intermediate drugs explicitly from India and China. Merck develops, produces, and
sells drugs and vaccines to patients both in the US and international markets, thus, mandates all
of its suppliers to follow prescribed supplier code of conduct.12 Merck’s supplier code of conduct
and policies are in line with those of the US FDA mandated US Current Good Manufacturing
Practices (CGMPs) ensuring the quality and useability of the procured materials.13 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.
According to their corporate website, Merck commits itself to empower its suppliers mix
through diversity and inclusion policies in place. Pharmaceutical supply chain (PSC) is one of
the most complex and continuously changing supply chains in the industry because drug usage is
quite unpredictable. The National Institutes of Health, US (NIH) data shows that due to lack of
optimum target inventory, high Supplychain costs, and inaccuracy in forecasting are some of the
major problems that create drug shortages.14 Under such circumstances, Merck tries to minimize
its costs by procuring major raw materials from Asia followed by the US and Europe. Merck also
active in leveraging science to create supply chain solutions where it has digitally transformed its
manufacturing facilities by using predictive control monitoring and lab monitoring technologies.
With the Restructuring Program since 2016, Merck has invested about $2 billion in transforming
its production into a real-time data driven global supply chain. Establishing environment friendly
factory setup as well as technologically advanced packing systems are some of the initiatives
taken by Merck in order to adapt to increasing demand of drugs due to external changes in the
business environment.
Human Resources Sector
One of the core values of Merck includes ‘respect for its people’ according to their
corporate website which portrays Merck’s commitment towards its partners.15 Human resources
are crucial in the pharma sector as expertise makes a difference in the performance of a specific
12 Merck & Co. (n.d.). Company Overview: Suppliers. Retrieved from: https://www.merck.com/company-
overview/suppliers/
13 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
14 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
15 Merck & Co. (n.d.). Company Overview: Mission, Vision & Values. Retrieved from:
https://www.merck.com/company-overview/

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pharmaceutical organization. Merck is a registered federal lobbyist in the US committing to
assist federal government in drafting regulations promoting public health policies and drug
discovery processes.16 Apart from the science of discovery, Merck is also known worldwide for
its drug manual that encloses various medication procedures along with drug usage effects in
long-term, known as Merck Manual, widely used medical reference across the globe. Merck’s
handbook focuses explicitly on conduct and behavioral policies for every person connected with
the company including the executives, employees, suppliers, and other stakeholders. According
to the CEO, Ken Frazier, skilled workforce is the prime driver of Merck succeeding in both R&D
and manufacturing abilities. Merck is referred as one of the best workplaces to work in the US,
voted by worldwide employees as the culturally strong organization, according to their corporate
sustainability report, 2019. Merck’s executives insist employees on actively challenging
themselves inside the business processes, boosting work ethic and morale for wider development
of skills. All in all, aforesaid practices mark Merck’s ability to utilize human resources for
attaining an advantage over competitors for effective global market performance.
Financial Resources Sector
Merck reported annual revenues of about $40.3 billion, $42.3 billion, and $ 46.9 billion
in 2017, 2018 and 2019 years respectively17 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. Merck along with obstacles from R&D, is also posed with hindrances from federal
government for price reduction in the US as well as major global markets such as China, Japan,
and Europe. Merck has limited its price increase to less than 10% every year in the US beginning
from 2020 after the policy makeover by the Trump administration.18 Merck, in order to sustain
its global position began formulating strategy by turning itself into a research-based organization
by spinning off slow growing units of trusted legacy brands, biosimilars, and women healthcare
products into Organon & Co., by first half of 2021. Merck realizes blockbuster revenues from
sales of Keytruda, Gardasil, MMR-II, Pneumovax, Clarinex, Emend, and Lynparza.19
Nevertheless, with growing generic competition, Merck has secured its place by getting approval
for more than 20 drugs along with many combination treatments of Keytruda. It can be noted
that Merck is all set to drive away the generic competition by stronger drug portfolio and R&D
pipeline by building up counteractive strategies and operating long-term sustainability.
Market Sector
By selling drugs and vaccines in more than 140 nations with 280 global locations, Merck
absorbs its revenues from all five continents in both human and animal health sectors. Merck’s
international revenues rose to more than 50% mainly from 2011 and continues through 2019.
Merck had international revenues of about 56.6% in 2019, 56% in 2018, and 56.5% in 2017 with
16 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
18 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

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China, Japan, and Europe as major single markets. With 144 external manufacturing facilities
globally, 35 corporate alliances, and 98 regional alliances, Merck provides access internationally
to its drugs, vaccines, and health services especially in the US. It was estimated that global
pharma was $1.25 trillion for 2019 fiscal which is expected to raise with CAGR of 6-8% in next
five years of which prescription drug market is forecasted to reach $1.5 trillion. With such
growth, Merck is all set to be the leading biopharmaceutical companies for catering growing
demand in the coming years acquiring increased market share.
Figure 2. Market forecast for branded drugs20
Technology Sector
Merck over years is known to be a pro in implying technology for boosting its
operational performance as well as drug discovery. 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.21 Main areas of
research by Merck include oncology, vaccines, infectious diseases, cardio-metabolic disorders,
neuroscience along with separate division for COVID-19. As part of its restructuring program
since 2016, Merck is transforming its manufacturing into digital and interconnected network
driven by real-time demand for drugs and vaccines. Merck is also known for its exclusive 3D
printing development facilities explicitly working on tissue cultures, cell responses, and
designing specific manufacturing models for expedite production. Merck also advances itself by
investing in AI, and cloud computing along with data analytics for efficient patient monitoring
and clinical trials data and analysis. Merck also has designed Merck Global Health Innovation
20 Waters, R. & Urquhart, U. (2019). World Preview 2019, Outlook to 2024. Evaluate Pharma.
https://info.evaluate.com/
21 Merck & Co. (n.d.). Research and Products.Retrieved from: https://www.merck.com/research-and-products/

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(GHI) Fund where it invests in change creating firms aimed at extravagant solutions in the
healthcare industry.
Economic Sector
Operating globally, Merck has significant impact from global economy as a whole as
well as individual economies such as the US, China, Japan, and Europe. With the global
pandemic since early 2020, alternative spending has come down while expenditure on expedited
research for COVID has gone up. Thus, along with inflation and interest rates, foreign exchange
fluctuations, GDP, economic cycles of respective nations, pandemic is also affecting Merck’s
activity. With its far-fetched product line and vaccines, Merck is still at par in 2020 despite
significant backlash in the market due to pandemic. Merck’s investment has been significantly
growing over years which accounted for nearly $10 billion in 2019. Data and privacy laws are
pivotal to Merck’s operations as they impact Merck’s discovery and patent exclusivity. 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 impacting economic
reforms on Merck’s operations.22
In addition, with the enactment of TCJA in 2017, Merck reported onetime tax payment of
$5.5 billion along with spending $4.5 billion, $1.5 billion, and $4.9 billion, in income taxes for
years 2019, 2018 and 2017 respectively towards corresponding fiscal year against the income.23
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.24 Merck also had favorable impact of 11% from foreign exchange on the whole
despite 3% decrease from foreign exchange in animal health segment. For developed nations like
the US, pharma sector forms the backbone which accounts for 4% of total GDP. Operating in
such a sophisticated industry, Merck also has formed alliances for developing focused medicines
as well as acquired companies such as Peloton Therapeutics for breast cancer drug development,
partnering with Samsung’s Bioepis for biosimilar version of Herceptin against Roche. Thus,
Merck with its focused business activity is trying to maximize its gain from all its international
operations despite varying economies across the world using cost maximization initiatives.
Government Sector
Daft explained government sector as a component of external environment where
political stability, economic performance, intellectual property rights (IPR), human resources
policies (HR), foreign investment policy, trade policy and tax reforms, healthcare sector norms,
and administrative policy altogether contribute to an organization’s performance. Political
instability and inflation are major concerns for Merck while operating in Latin America and
African nations with interference from politicians and bureaucrats. Quality standards is another
major issue for pharmaceutical companies which imply companies to follow certain specified
standards for conducting business in respective nations. IPR laws are essential because
22 Merck & Co. (n.d.). Merck & Co 2019 AnnualReview. Retrieved from:
https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf

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infringements are definite threat for drug companies linked to their drug development, marketing
and selling rights. Merck, in 2017 was cyberattacked where its global network was disrupted
which led to interruption of all its operations globally. Foreign trade and tax regulations are also
other attributes under government which have direct impact on Merck such as TCJA, Brexit, and
norm change under EMA. In 2018, under an act to stop unusual pricing increase in pharma,
President Donald Trump had introduced International Pricing Index (IPI) model to limit rises
across the US seizing the increase to less than 10% annually. Japan also mandated biennial price
reductions for specific vaccines and drugs in 2020. Hence, Merck seems to continue its pricing
and cost maximization efforts by adapting to the definite policy change.
Sociocultural Sector
Aspects such as demographics, lifestyle, disease patterns, urbanization, immunity
analysis, epidemic history, and disease history are some of the components that provide
understanding of kind of drugs needed for development in specific nations. Merck uses this data
in conducting and developing novel drugs addressing the diseases whose usage vastly depends
on culture towards science and medicines as well as government’s interference in the discovery
and approval processes. Market intelligence equips Merck with focused and unprecedented data
serving R&D and manufacturing activity. Patient empowerment, changing patient demographics,
and increased risk exposure influence Merck’s development procedures which evolve on a
periodic basis. Moreover, Merck is also committed to serving global population by working very
near to attain UN SDGs by focusing at SDG-3, SDG-5, SDG-6, SDG-7, SDG-8, SDG-12, SDG-
13, and SDG-17 by 2030.25 Merck is well-known for its Vioxx scandal in which its anti-steroidal
drug was causing three to fourfold increased myocardial infections such as heart attack and
stroke in patients. Merck has also provided access to medication across Africa for mitigating
river blindness along with its blockbuster streptomycin, M-M-R II, and HPV vaccines.26 Merck
is also in process of developing two mRNA-based vaccines for SARS COVID-19 along with an
oral antiviral drug reported by the FDA.27 Thus, Merck fosters its business action in line with
changing sociocultural attributes attaining maximum advantage for its sustenance.
International Sector
Table 2. Merck’s revenue distribution28
25 Merck & Co. (n.d.). MSD Corporate Responsibility Report: Sustainable Development Goals (SDGs). Retrieved
from: https://www.msdresponsibility.com/reporting/un-sustainable-development-goals/
26 Merck & Co. (n.d.). Company Overview. Retrieved from: https://www.merck.com/company-overview/history/
27 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/
28 Merck & Co. (2020). Merck 2019 AnnualReview. Retrieved from:
% in 2019 % in 2018 % in 2017 % in 2016 % in 2015 % in 2014
US 43% 43% 43% 46% 44% 40%
EMEA 27% 29% 29% 28% 27% 31%
Japan 8% 8% 8% 7% 7% 8%
China 7% 5% 4%
Asia Pacific 6% 7% 7% 10% 10% 9%
Latin America 5% 6% 6% 5% 7% 7%
Rest of the world 3% 3% 4% 4% 5% 3%

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Above table shows Merck’s increasing international revenues over years with
skyrocketing sales of Lenvima and Keytruda. Merck reported $46.84 billion sales in 2019 of
which only 44% was from the US while the rest 56% from foreign markets. Foreign revenues
accounted only 30% for Merck during previous decade which saw a significant raise in 2011
through 2019 with China, Japan, and Europe as major outside markets. Global demand is
expected to rise specially from the pharmerging markets, as coined by the WHO. IQVIA along
with consensus from WHO, characterized pharmerging market as nation with less than $30k
GDP/capita and greater than $1 billion absolute prescription drugs market growth potential
between 2014 & 2019.29 China, Brazil, India, Russia, Mexico, Turkey, Poland, Saudi Arabia,
Indonesia, Egypt, Philippines, Pakistan, Vietnam. Bangladesh, Argentina, Algeria, Colombia,
South Africa, Chile, Nigeria, and Kazakhstan are termed as pharmerging markets whose growth
potential is rapidly increasing.30 With oncology and cardiovascular diseases as one of its major
areas of focus, Merck is all set to strive in serving raising global demand retaining its top five
position in the world biopharmaceutical market.
However, in 2018, Trump administration strengthened the regulatory norms under
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.31 Following the stringent norms under FIRRMA, investment in the US pharma has come
down to 30% or less in 2019 and zero in 2020 following the change in policies as well as hit by
pandemic. In order for Merck to continue its growth in global market, Merck should utilize its
market intelligence and competitive intelligence teams. As Daft emphasized, any organization
irrespective of industry should seek ways to adapt according to its external environment for
maximizing growth through definite set of opportunities. Thus, it is mandatory for Merck to
actively adapt to the external business atmosphere and change accordingly in order to squeeze
maximum opportunity leading to increased competitiveness in the international drug sector.
Internal Environment
As emphasized by David text, any organization attains sustainable competitive advantage
by exploiting its internal strengths in adapting to changes in the external business environment.32
Internal audit allows strategists to design goals and objectives for the organization through the
lens of exploiting its strengths for creating distinctive competencies. David text provided a
framework which can be applied to Merck and evaluate its current position in holding effective
internal strengths. The Internal Factor Evaluation (IFE) matrix enlists peculiar characteristics
possessed by Merck which either are promoting its performance or obstructing its performance
given its weaker characteristics. Below table shows that Merck has weighted score of 3 while
29 Rickwood, S. (2017). Prescription Medicines Trends: An Overview and Perspective on Two Therapy Areas.
IQVIA. https://www.who.int/phi/2-SarahRickwood.pdf
31 Congressional Research Service. (2020). CFIUS Reform Under FIRRMA. Retrieved from:
https://fas.org/sgp/crs/natsec/IF10952.pdf
approach.Pearson.

STRATEGIC PLAN 15
assessing all its internal factors using IFE indicating Merck is comparatively using its internal
factors to succeed among the competitors in marketplace.
Table 3. Internal Factor Evaluation Matrix of Merck
Key Internal Factors Weight Rating Weighted Score
Strengths
R&D - capital & pipeline 0.15 4 0.6
Product portfolio 0.1 3 0.3
Financial capital 0.1 3 0.3
Global presence 0.1 3 0.3
Strong organizational culture 0.05 3 0.15
Focused restructuring 0.15 3 0.45
Weaknesses
Loss of patent exclusivity (LOE) 0.15 3 0.45
Drug shortfall 0.1 2 0.2
Reducing working capital 0.05 3 0.15
Supply chain complexity 0.05 2 0.1
Total 1 3
Management
Merck ascertained its position serving as one of the prominent business case studies for
management and policy governance in the industry during late 20th century. However, Merck had
seen denigrating performance early 2000s coupled with declining sales, product expirations and
slow growing business segments such as consumer healthcare products. With the leadership
transition in 2011 when Richard T. Clark was succeeded by Kenneth C. Frazier as the CEO,
Merck underwent strategy formulation and began increasing expenditure towards R&D.33
Company achieved several tens of FDA and EMA approvals since 2010 creating extravagant
revenues through Gardasil, MMR-II, Lynparza, Lenvima, and Keytruda.
Strategic management concept emphasizes that there are five major functions performed
by management which include planning, organizing, motivating, staffing, and controlling. It
seems that Merck’s executive and management team has been performing these functions on a
regular basis which can be observed through their divestments, restructuring, and business
development activities. Merck today spends an average of $8 billion towards drug discovery and
development which was almost $10 billion in 2019 making the second after Roche.34 Executives
at Merck divested their consumer healthcare unit effective October 01, 2014; they have also
planned major spinoff of women’s healthcare products, biosimilars, and trusted legacy brands
33 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

STRATEGIC PLAN 16
into Organon & Co., a separate public corporation in order to turn into a focused organization.35
Merck’s ongoing strategic partnerships with Bayer AG, AstraZeneca, and Eisai for respective
drug development, marketing and selling marks their executive vision and commitment to
building a sophisticated organization. Operating in a matrix structure, Merck has effective
corporate governance policies in place demanding transparency and value creation as means of
organizational growth. A Harvard study explained how better corporate governance significantly
contributes in achieving long-term goals as well as in value creation which can be noted through
Merck’s performance. With the diversified 13 Board members along with 11 managers in
executive team, Merck is committed to its shareholders and serving community by pursuing UN
SDGs. Therefore, creation and provision of blockbuster drugs and vaccines making a difference
in global patients’ lives has been prime goal of Merck’s management.
Marketing
Marketing forms a major share of pie in Merck’s operations or for any pharma for
acquiring market share by selling more drugs to define markets. Merck reported $10.21 billion,
$8.55 billion, and $8.04 billion in selling and administrative expenses excluding D&A
(depreciation and amortization) in 2019, 2018 and 2017 respectively.36 It is estimated that Merck
has spent about $190 million in DTC (direct-to-consumer) advertising Keytruda as monotherapy
for various immunotherapies in the US. Research shows that infectious and respiratory disease
drug market has grown about 75.84% while consumer health and vaccines have grown about
76.11% opening wider opportunities for Merck. According to branding and marketing agency in
the US, Merck and JNJ were in a tie where both of them spent nearly $14 billion on branding in
2016. 37 Merck had also spent exclusively $95 million on DTC advertising only in 2019
indicating its segregation power of financial resources through years.
Aforementioned aggressive branding has fostered Merck’s sales for its Gardasil and
Keytruda and other products giving tough competition in the market. Merck’s strengthened
marketing and business development activities has also fostered its pipeline development
boosting its market capitalization which has increased over 11% by the end of 2019. Global
pharmaceutical sector accounted for $953 billion $1.3 trillion in 2018 and 2019 respectively
majorly from oncology, immunology, diabetes, and cardio-vascular markets. Thus, Merck gained
global market share of 4.44% placing itself as the world’s fourth largest biopharma firm. Top ten
firms in terms of market share globally were 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%).38 Also, in
the US in order to regulate the direct advertising and marketing efforts of the drug companies,
government agencies such as Office of Prescription Drug Promotion (OPDP; previously known
35 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
37 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
38 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/

STRATEGIC PLAN 17
as the Division of Drug Marketing, Advertising and Communication (DDMAC) renamed in
September 2011) or the Advertising and Promotional Labeling Branch (APLB) of the FDA
Center for Biologics Evaluation and Research assess and issue warning letter to respective
companies for their misconduct in the market.39 Such issue of warning letters or untitled letters
received by Merck from 2014 through 2020 were zero showing their unhindered commitment to
creating value while serving patients through their expertise and sciences. Wall Street analysts
estimate that Merck’s Keytruda to be one of the best-selling drugs creating blockbuster revenues
crossing Humira by AbbVie in sales by 2025.40 All in all, marketing initiatives taken by Merck
are imperative in themselves creating a long-term position for it in the global markets.
Production/Operations
Research suggests that pharmaceutical supply chain (PSC) is one of the most complex
supply chains in the industry globally41 with compound production, distribution, and
procurement activities. Merck has its suppliers all over the world mainly importing APIs and
various chemical solvents from China, India, and Europe. A McKinsey study shows that 35% of
pharmaceutical industry’s profit and loss can be attributed to their supply chain operations42
which involves a global network of suppliers, contractors, manufacturing agencies as well as
global distributors. According to corporate responsibility report 2016/2017, Merck began
executing its restructuring program by reducing their real-estate holding across the globe and
digitally transforming their manufacturing network globally for achieving cost effectiveness and
capacity maximization.
Restructuring in terms of manufacturing is aimed at developing their external 80
manufacturing sites along with other 20 internal sites coupled with revamping their supplier
collaborations and integrated supply chain.43 Merck is striving to imply Lean and Six Sigma
initiatives inside its global manufacturing network aiming for cost optimization creating a global
competitive advantage. Merck seems handy in transforming its manufacturing network which
today makes about 10,300 varieties of products that constantly need data to be synced to a
universal network. Merck has already invested about $3 billion towards reinvigorating its supply
chain by globally integrating its supply-side to real-time data-driven network in order to prevent
product short fall in various global markets.44 Henrik Frojdh, Supply Chain Planning Lead at
MSD, said that the only way Merck saw transforming its system was by connecting systems as in
39 Merck & Co. (n. d.). Ethics & Values: Sales and Marketing Practices. Retrieved from:
https://www.msdresponsibility.com/ethics-values/sales-marketing-practices/
40 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
41 Slone, R. E., Mentzer, J. T., & Dittmann, J. P. (2007). Are You the Weakest Link in Your Company’s Supply
Chain? Harvard Business Review, 85(9), 116–127.
42 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#
43 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/
43

STRATEGIC PLAN 18
providing a single-step solution by integrating demand and supply chain.45 Merck reported that it
has allocated over $4 billion for all its restructuring program which is expected to be finished by
2023; seems to be intuitive in nature actively seeking changes to the structure flourishing their
future performance.
Finance/Accounting
Table 4. Cash assessment of Merck
Above table suggests that Merck has been improving its cash holding abilities over years
especially in terms of working capital. However, working capital has taken toll due to its
investment towards revamping its manufacturing abilities through restructuring program since
2016. Cash from operations is indicating its cost effectiveness initiatives which has improved
over 50% from 2017 to 2019. In comparison with its peers both Johnson & Johnson (JNJ) and
Pfizer, Merck is relatively in a better position holding on to its assets and cash performance over
years. Its cash receivable turnover ratio of 6.91 ascertains its ability of operating in terms of cash
and efficiency of account receivables. Shareholders equity, on the other hand, indicates that
Merck is relatively on higher side of accumulating debt given its restructuring and focused
business strategies which are quite capital intensive in nature.
Table 5. Profitability assessment of Merck
45 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
2017 2018 2019 2017 2018 2019 2017 2018 2019
Current Ratio 1.33 1.17 1.24 1.35 1.57 0.88 1.41 1.47 1.26
Quick Ratio 0.83 0.72 0.78 1.03 0.95 0.59 1.04 1.08 0.94
Accounts Receivable Turnover 5.84 5.98 6.91 4.66 4.71 4.29 5.67 5.79 5.67
Inventory Turnover 2.51 2.48 2.36 1.48 1.5 1.23 2.89 3.15 3.05
Accounts Payable Turnover 0.82 0.8 0.76 1.57 1.41 1.4 1.07 1.07 0.88
Long-termDebt / Owners' Equity 1 1.25 1.39 0.97 1 1.05 1.11 1.04 1.05
Cash fromOperations 6447 10922 13440 16468 15828 12588 21056 22201 23416
15.3% 18.1% 11.3%
Cash Assessment Ratios
Working Capital
(as percentage of annualrevenue)
16.4%
-8.7%
33.7%
20.4%
11.2%
8.7%
Pfizer
Merck Johnson & Johnson
2017 2018 2019 2017 2018 2019 2017 2018 2019
ROE 7.0% 23.0% 37.6% 29.8% 17.5% 25.7% 2.2% 25.6% 25.4%
ROA 2.8% 7.5% 11.6% 12.4% 7.0% 9.7% 0.8% 10.0% 9.6%
Net Profit Margin 6.0% 14.6% 20.9% 40.6% 20.8% 31.5% 1.7% 18.8% 18.4%
Asset Turnover 0.46 0.51 0.55 0.31 0.34 0.31 0.49 0.53 0.52
Totalassets/ Owners' Equity 2.54 3.07 3.25 2.4 2.5 2.64 2.61 2.56 2.65
EPS 0.9 2.39 3.85 3.57 1.96 2.95 0.48 0.57 0.57
Gross Profit Margin 68.2% 68.1% 69.9% 78.6% 79.0% 80.3% 66.8% 66.8% 66.4%
Operating Income Margin 18.2% 21.1% 26.1% 26.8% 28.0% 26.9% 24.5% 24.6% 24.5%
Income before Tax Margin 16.3% 20.6% 24.5% 23.4% 22.2% 34.2% 23.1% 22.1% 21.1%
Profitability Assessment Ratios
Pfizer
Merck Johnson & Johnson

STRATEGIC PLAN 19
Above table presents how Merck is utilizing its financial resources in outperforming
peers by acquiring increased market share over years. Merck has vastly improved its ROE and
ROA driven by increased sales and net profits mainly because of Keytruda since its approval in
2017. Merck is also outperforming its peers in terms of owners’ equity ratio of 3.25 in 2019
when compared to 2.61 of Pfizer and 2.65 of JNJ. Thus, net profit margin is also increasing over
years marking as the outcome of its stretched research pipeline leading to definite growth in next
few years.
Figure 3. Cashflow performance of Merck46
Research& Development
Figure 4. R&D expenditure trend of Merck and peers

STRATEGIC PLAN 20
Active and early research and development of novel drugs have been prime objective
under the global strategy of Merck fostering its commitment to society by providing innovative
medicines for patients across the world. Through active technological collaborations as well as
strategic partnerships, research candidates of Merck are underway to transform patients’ lives.
Merck is an active partner in AMR Action Fund which is aimed at research and developing
antibodies fighting the superbugs (AMR).
Figure 4. Merck’s pipeline as of July 31, 202047
In addition, Merck also actively partners with tech companies which are committed to
create a difference using AI, cloud computing, data analytics, eClinical trials, and patient
monitoring and analytics platforms. Merck, by far has 1,146 registered patents in 68 countries
along with additional 305 protection certificates in 19 nations floating under its brand sold
globally. Below picture shows Merck’s pipeline while it has also received 19 approvals for
various drugs in its pipeline as of February 2020 from FDA and EMA. Among which Keytruda
47 Merck& Co. (2020, July 31). Research & Products: Pipeline. Retrieved from: https://www.merck.com/research-
and-products/product-pipeline/

STRATEGIC PLAN 21
alone has about 14 approvals that can be used as both monotherapy and combination therapies to
treat various NSCLC carcinoma and other types of carcinoma. After three clinical trials under
R&D, Merck also has under review stage where all its analysis is reviewed for final time by FDA
before the approval and commercialization. Final stage real-world data is where Merck has their
Center for Observational and Real-World Evidence (CORE) dedicated to understanding how
their medicines are contributing to the functioning of patients in the real world.48 Merck claims
the importance of final stage in the R&D process saying that the crucial nature of drug as well as
any adversities if encountered or any chance of multi-disease utility is determined in this stage.
Merck employs one-fifth in R&D facilities located in 8 regions across the US, which also
includes their technology-driven labs such as 3D-tech labs. Being an active member of PhRMA
(Pharmaceutical Research and Manufacturers of America) who spent about $79.6 billion in the
US, Merck spent about 21.3% of its total revenues in the 2019 fiscal year. Hence, over years,
Merck has been imperative in achieving astounding results through early discovery and owing to
sell some of the best drugs in the industry such as Keytruda.
Market Analysis
Positioning the organization in marketplace
Figure 5. Positioning map of Merck and peers
48 Merck & Co. (n.d.). Research & Products: Discovery & Development. Retrieved from:
https://www.merck.com/research-and-products/discovery-development/
Pfizer Roche
JNJ Merck
Teva Pfizer
Lupin JNJ
Sun Merck
Perceived Low Value
(generic drug market)
Innovative
Perceived High Value
(branded drug market)
Reactionary

STRATEGIC PLAN 22
A Harvard research suggests that the company’s competitive strategy is essentially
governed by the customer’s willingness to pay towards receiving perceived benefit from
respective firm’s product.49
Figure 6. Essentiality of positioning for competitive advantage creation (self-made)
Thus, for devising a competitive strategy, it is necessary requirement for them to choose
products or services to meet specific needs of target customer. Unique characteristics and market
attributes are well studied, and above positioning map is created for Merck by placing it against
its peers. Hence, it can be noted that Merck uses global differentiation strategy for conducting
operations globally creating competitive advantage over peers.
Points of Parity
Points of parity are the general characteristics possessed by various companies in an
industry, as explained by Kotler.50 In other words, they are basic requirements to be held by the
company for customers to have minimum perceived value about their brand making it as one of
its peers in the industry.
Operating in the drug industry, quality and reliability of drugs is the first attribute of
Merck which is also common in its peers. Drug approval is a lengthy and cost-intensive affair
needing Merck and any other prescription drug companies to undergo stringent clinical trials and
review procedures for final commercialization of corresponding drugs. Second point-of-parity is
its distribution network in the US; Merck has nearly 44% of its revenues exclusively from the US
market where most of its drugs are primarily sold to three channels namely McKesson, Cardinal
Health, and AmerisourceBergen Corporations. Merck reported that these three companies
account for 35% of total receivables as of December 31, 2019 where these three channels are the
largest distributors in the US. Third point-of-parity is global outreach of Merck, similar to its
peers such as Pfizer, JNJ, Roche, Novartis, and GSK. Merck also operates in more than 125
world countries offering wide variety of drugs to treat cancer, cardiovascular diseases, infectious
49 D’Aveni, R. A. (2007). Mapping Your Competitive Position. Harvard Business Review, 85(11), 110–120.
50 Kotler, P. & Keller, K. L. (2015). Marketing Management.Fifteenth Global Edition. England, UK: Pearson
Education Limited.p.302.
Product
Positioning
Niche
Opportunities
Customers'
willingness-to-pay
Perceived
Value
Competitive
Advantage

STRATEGIC PLAN 23
diseases as well as serves through providing vaccines such as Gardasil, MMR-II and HPV.
Another common attribute of Merck as of its peers include its relentless work committing to UN
SGDs along with its sustainable corporate initiatives including eradicating river blindness in
Africa. Aforementioned various attributes of Merck as an organization helps customers seek
needed value for them to boost their willingness to pay for Merck’s drugs and vaccines.
Points of Difference
‘Why Merck’ or ‘What is exclusive about Merck’ is the question which builds a
perception in the minds of customers motivating them to buy Merck’s products, in turn creating
competitive advantage for the company.51 In other words, points-of-difference are those
characteristics of Merck which differentiate it from other pharma companies. Points-of-
difference state Merck’s explicit capabilities of serving patients under certain chronic illness. As
illustrated in the figure 6, positioning should be done such a way that the company can utilize all
its exclusive abilities through its products and services motivating customers by solving their
problems in turn creating their own competitive advantages over others. Focused R&D as well as
drug manufacturing and delivery processes enable Merck to foster its leading position in serving
global patients through their expertise in oncology, infectious diseases, vaccines, and
cardiovascular disorder sciences. Merck’s relentless efforts mainly in diabetes, and cancer is
facilitating its drug discovery and development in making cancer drugs which led to discovery of
Keytruda. Today, Keytruda is the leader in immunotherapy which is used as both monotherapy
and combination therapy in treating cancer from small cell NSLDC to heavy organ carcinoma.
Figure 7. Forecast of global prescription drugs demand52
51 Kotler, P. & Keller, K. L. (2015). Marketing Management.Fifteenth Global Edition. England, UK: Pearson
Education Limited.p.300.
52 Consulting US. (2019, August 16). Cancer drug sales expected to increase dramatically by 2024. Retrieved from:
https://www.consulting.us/news/2752/cancer-drug-sales-expected-to-increase-dramatically-by-2024

STRATEGIC PLAN 24
Second point-of-difference is Merck’s aggressive nature strengthening its R&D
candidature by involving itself in various business development activities. Merck recently
acquired Peloton Therapeutics, Immune Design, ArQule, and Antelliq53 in order to retain its on-
going discovery activity in various novel small molecule therapeutic candidates for the treatment
of cancer and other diseases as well as kinase inhibitors for cancer types. By creating stronger
pipeline, Merck is surpassing its peers through attaining tens of drug approvals every year
despite inevitable patent expirations. Merck actively collaborates with peers such as Bayer AG54,
Eisai55, AstraZeneca56 for developing, discovering, and delivering drugs such as Lynparza,
Lenvima, and Bravecto in various international markets.
Third point-of-difference is Merck’s unprecedented ability of using advanced
technologies towards R&D and manufacturing network; it recently announced major
restructuring program aimed at reducing real-estate footprint and revamping supply chain into a
digitally connected network. Merck is undergoing transformation of global manufacturing and
supply chain by proactively linking suppliers, contractors, customers, and distribution partners
together into a collaborated technological platform. Such highly integrated ecosystem shall
enable Merck savings of estimated $500 million57 exclusively in manufacturing in the very first
year. Owing to their drug shortfall in the US in 2017, executive team had formulated their global
strategy in creating a lean and highly integrated supply chain directly leading to increase bottom-
line figures. Merck strategically partnered with Accenture and Amazon for obtaining cloud
computing and data analytics platforms for expedited R&D through clinical trials data in 2018.58
In addition, Merck also indulges in developing state-of-art technology hubs, since 2012, such as
3D printing tech labs across five global locations59 where they develop tissues and design various
peculiar manufacturing parts, that are harder to be available in the market, thereby boosting its
drug discovery and manufacturing abilities.
Fourth point-of-difference is their capital allocation mechanism along with strong
organizational culture committing to vision of uplifting patients’ lives across the global markets
they serve. Merck’s social initiatives of distributing medicines of $2.5 billion worth across the
US freely along with Merck help program at developing South-western states in the US and their
54 Hale, C. (2018, December 5). FDA grants breakthrough device designation to Bayer, Merck’s AI for spotting
CTEPH. Fierce Biotech.https://www.fiercebiotech.com/medtech/fda-grants-breakthrough-device-designation-to-
bayer-merck-s-ai-for-spotting-cteph
55 Eisai Global. (2020, July 8). Eisai and Merck Receive Complete Response Letter for LENVIMA® (lenvatinib)plus
KEYTRUDA® (pembrolizumab) Combination as First-Line Treatment for Unresectable Hepatocellular Carcinoma.
https://www.eisai.com/news/2020/news202039.html
56 AstraZeneca.(2017, July 27). AstraZeneca and Merck Establish Strategic Oncology Collaboration.Retrieved
from: https://www.astrazeneca.com/media-centre/press-releases/2017/astrazeneca-and-merck-establish-strategic-
oncology-collaboration-27072017.html#
57 Abel, J. (2019, June 27). Digital Transformation at Merck Pharmaceuticals.ARC Advisory Group.
https://www.arcweb.com/blog/digital-transformation-merck-pharmaceuticals
58 Accenture. (2018, September 17). Accenture and Merck Collaborate with Amazon Web Services to Launch a
Research Platform to Drive Innovation in Drug Discovery and Scientific Research. Retrieved from:
https://newsroom.accenture.com/news/accenture-and-merck-collaborate-with-amazon-web-services-to-launch-a-
research-platform-to-drive-innovation-in-drug-discovery-and-scientific-research.htm
59 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/

STRATEGIC PLAN 25
diabetes program makes it stand out of the peers. Merck has shown its commitment towards
society by seeking water-free and zero waste solutions according to their corporate website. By
working in conjunction to the UN, Merck successfully eradicated river blindness from Africa by
2019 according to the company’s corporate sustainability report of 2019-2020. Merck over years
has increased its net income about 58% from 2018 to 2019 and 60% from 2017 to 2018
according to its 10-K filings.
Global pharmaceutical spending reached nearly $1.3 trillion in 2019 which is expected to
raise to $1.5-$1.6 trillion by 2024 of which oncology might account for more than $300 billion,
according to IQVIA study.60 Under such circumstances, Merck is all set to acquire more market
share given it explicit drug discovery and development in fields of cardiovascular and oncology
sciences. Although Merck’s revenues took toll following its patent expiry of Singulair, HCV in
collaborative research with Gilead Sciences, Merck restructured their costs and retained position
in the market. Thus, aggressive R&D along with explicit expertise in specific sciences and
effective allocation of financial resources facilitate long-term sustenance of Merck in the global
biopharma industry.
Market Size and Growth
Statistics show that global pharmaceutical companies have increased their revenues on an
average by 1.02% in 2018 and an average of 1.88% in 2019. Merck also experienced raise in
revenues from 2018 to 2019 with over 11% overall along with 2% impact from favorable foreign
exchange on annual sales. Merck is both horizontally and vertically integrated accounting for
about 4.44% of drugs consumed globally. Headquartered in Kenilworth, New Jersey, USA,
Merck operates in more than 270 global locations across 125 and more world countries with
main focus on oncology, vaccines, infectious disease, cardiovascular disorders, and COVID-19
fields through drug discovery, development, and commercialization activities.
Figure 8. Operating results of Merck from both US and international markets61
The US being the single largest consumer of prescription drugs made by Merck,
accounted for 43% of its total revenues since fiscal 2015 to 2019. On the other hand, Japan
accounts for 8% of its total revenues, which has been constant since 2015 and China contributed
to 4% in 2017, 5% in 2018, and 7% in 2019 total revenues. As mentioned earlier, global
60 IQVIA. (2020, March 5). Global Medicine Spending and Usage Trends: Outlook to 2024. IQVIA.
https://www.iqvia.com/insights/the-iqvia-institute/reports/global-medicine-spending-and-usage-trends

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healthcare spending is to be increased to nearly $1.6 trillion by 2025 with a CAGR of 4-5%62
indicating the growth opportunity for all the top ten global pharmaceutical firms including
Merck.
Wall Street Analysts and healthcare analysts expect that Merck’s Keytruda could be the
top of the best-selling drugs in the history for immuno-oncology treatments. Merck has reported
almost $12 billion in sales of Keytruda in FY19 which is estimated to draw about $25-$30 billion
by 2025. Merck also is committed in developing two mRNA-based antiviral vaccines for fighting
COVID-19 as well as an oral antiviral drug for boosting immunity against the SARS COV-2
virus. Growth prospect for Merck ideally is whole world customer under oncology, diabetes,
cardio-vascular diseases, and vaccines indicating Merck’s areas of focus. However, operating in
an extremely regulated and fiercely competitive industry, Merck is constantly encountered with
peer pressure from Roche, Novartis, Pfizer, JNJ, Sanofi, and GSK through various drugs such as
Ibrance, Prevnar/Prevnar 13, Zocor and many more. In addition, IQVIA along with WHO studies
suggest that over next five to ten years, healthcare spending from pharmerging nations will be
increased at CAGR of 2-5%. IQVIA along with consensus from WHO, characterized
pharmerging market as nation with less than $30k GDP/capita and greater than $1 billion
absolute prescription drugs market growth potential between 2014 & 2019.63 China, Brazil,
India, Russia, Mexico, Turkey, Poland, Saudi Arabia, Indonesia, Egypt, Philippines, Pakistan,
Vietnam. Bangladesh, Argentina, Algeria, Colombia, South Africa, Chile, Nigeria, and
Kazakhstan are termed as pharmerging markets whose growth potential is rapidly increasing.64
All in all, it can be noted future prospects from market and growth aspect seems to be highly
attractive facilitating Merck to actively seek strategies for prolonged and long-term sustenance in
the marketplace.
Target Market and Customers
Targeting specific segment is crucial for organizations in order to serve precise needs in
the market facilitating increased perceived value for respective brand. Targeting enables
companies to have a clear understanding who and what their true or ideal customers want and be
able to cater to those needs thereby boosting their performance in the global markets due to their
competencies. Merck has targeted in terms of specific medical areas instead of demographics as
it basically produces drugs that are used to treat patients of any demographic. Given its primary
foci on oncology, infectious diseases, and cardiovascular diseases, it provides patients globally
with blockbuster drugs for treating NSCLC cancer, breast cancer, metastatic cancer, colorectal
cancer, lymphoma, leukemia, and other carcinoma types. With its discovery and development of
Keytruda, sales of Merck skyrocketed following its approval by FDA in 2017 and later EMA
approval in 2018. Keytruda today is being used as both monotherapy and combination therapies
after the chemotherapies as an aid in immunotherapies. Merck is one of the pioneers in the
industry in terms of making and selling cancer drugs with more than 180 drugs sold across
62 Pharmaceutical Commerce. (2019, January 29). Global pharma spending will hit $1.5 trillion in 2023, says
IQVIA. Retrieved from: https://www.pharmaceuticalcommerce.com/business-and-finance/global-pharma-spending-
will-hit-1-5-trillion-in-2023-says-iqvia/

STRATEGIC PLAN 27
international markets. Various market and drug analysts expect that Keytruda might draw about
$25-30 billion revenues by 2025 making it the best gross-selling drug in the history crossing
Humira. Merck also manufactures vaccines for measles, Ebola virus, mumps, rubella, varicella,
shingles, rotavirus gastroenteritis, and other pneumococcal diseases which enable Merck’s at par
performance in the global markets.65
Merck could increase its customer base following the merger of Schering Plough in 2009
where through Merck’s expertise in science and Schering Plough’s international locations, had
major global penetration boosting its performance over years. Merck not only targets in terms of
areas of science but also in terms of geographic regions and business segments. For instance, in
North American region, it focuses on healthcare and insurance management companies while in
Asia it focuses on government agencies more than individual healthcare institutions. Targeting
for Merck is also dependent on specific country’s healthcare system such as in the US, healthcare
is privatized where individual corporations, health and care management firms bargain drugs. On
the other hand, in case of Japan, healthcare is a public institution headed by Japanese
government who have the power of bargaining where Merck has to comply with the norms of
pricing, advertising, and selling in Japan.66 Targeting in terms of business segments include
animal health revenues which are focused at both livestock and companion animals. It can be
concluded that Merck classifies immuno-oncology, antiviral, antibacterial, diabetes,
gastroenteritis, pneumococcal diseases, and other respiratory and anthelmintic markets as its
target markets.
Figure 9. Focused markets for global pharma forecast67
65 Market Beat. (n.d.). Merck & Co., Inc. Stock Forecast, Price & News. Market Beat. Retrieved from:
https://www.marketbeat.com/stocks/NYSE/MRK/
67 Desjardins, J. (2019, January 30). Visualizing the Future of the Pharma Market. Visual Capitalist. Retrieved from:
https://www.visualcapitalist.com/future-pharma-market/

STRATEGIC PLAN 28
As aforementioned, customers of Merck include government agencies, health
management companies, benefit management companies, insurance firms, doctors, physicians,
nurses, pharmacy benefit manager (PBMs), welfare and employee management organizations,
and other integrated delivery systems (IDS). With changing demographics, industrialization,
increased healthcare spending across the globe, customers for healthcare companies are
increasing every year according to WHO statistics. Pharmerging countries are expected to be the
top customers for global healthcare companies where diabetes, cancer, and neurological
disorders are increasing over years, thus, a definite prospect of growth for Merck. Below picture
Merck’s customers growth that could in turn impact the performance of Merck in coming years.
Figure 10. Overall Customer base in terms of industry type68
Major Competitors and Participants
Figure 11. Peer comparison of Merck69
Key therapeutic areas such as oncology, cardiovascular diseases, immunology &
inflammation, vaccines, neuroscience, and antibiotics are very broader areas in medicinal
sciences. Thus, similar to that of Merck, peers such as JNJ, Pfizer, GSK, Roche, Sanofi,
68 CSI Market. (n.d.). Merck & Co Inc. CSI Market.Retrieved from:
https://csimarket.com/stocks/markets_glance.php?code=MRK
69 Morning Star. (n.d.). Pharmaceutical Industry Review. https://www.morningstar.com/
Attribute Merck Pfizer JNJ Roche
Size >120 nations >125 nations >100 nations >100 nations
Employees (FY19) 77,000 88,300 130,000 97,735
Areas of focus
oncology, cardio-
vascular,
diabetes, vaccines &
animal health
internal medicine,
inflammation &
immunology,
oncology, rare diseases &
vaccines,
anti-infectives, consumer
healthcare
immunology,
cardio-vascular,
pulmonary hypertension,
infectious disease,
vaccines,
neuroscience, oncology &
consumer healthcare
Oncology,
immunology,
opthalmology,
infectious dieseases
& neuroscience
Revenues (FY19) $46.84 billion $51.75 billion $82.06 billion $67.6 billion
Net Income (FY19) $9.84 billion $16.27 billion $15.12 billion $14.9 billion
R&D expense (FY19) $9.9 billion $8.8 billion $11.46 billion $13.2 billion

STRATEGIC PLAN 29
Novartis, AstraZeneca, Abbott, Bayer, and AbbVie are some of the fortune 500 companies
operating in same sciences.
Figure 12. List of top ten global pharma companies based on revenue generation70
Figure 13. Net income trend for FY 201971
Early discovery and development, and patent exclusivity are two attributes that make an
organization competitive in any key therapeutic area in the global drug industry. Statistics show
that Pfizer, JNJ, GSK, Merck, AstraZeneca, Roche, Novartis are some of the top ten global
70 Top 10 pharma companies by revenues in 2019. (2020, March 4)
https://www.beckershospitalreview.com/pharmacy/top-10-pharma-companies-by-revenue.html
71 Morning Star. (n.d.). Pharmaceutical Industry Review. https://www.morningstar.com/
Johnson &
Johnson, US
Roche,
Switzerland
Pfizer, US
Merck & Co.,
US
Amgen Inc., US
AbbVie, US
Novartis,
Switzerland
Bristol-Myers
Squibb, US
Gilead
Sciences, US
Novo Nordisk
A/S, Denmark
2019 GLOBAL PHARMA NET INCOME TREND

STRATEGIC PLAN 30
pharmaceutical companies maintaining their position constant in the list since 2012 as shown in
figure below. While Sanofi, Roche, Bayer, Novartis, and GSK are foreign listed companies, JNJ,
Pfizer, Merck, AbbVie, Abbott, and Gilead are American nationals listed on the NYSE.
JNJ and Pfizer are considered as prime competitors for Merck as all of them are
American nationals operating in very similar therapeutic areas. Production capacity for JNJ is
relatively larger than both Pfizer and Merck due to its humungous presence in consumer
healthcare business selling women’s products, childcare products, OTC drugs as well as
cosmetics. Product strategy for Pfizer and JNJ are more inclined towards diversification as both
of them operate in consumer healthcare and generic drug markets. Whereas Merck divested its
consumer business, called Merck consumer healthcare company as of October 01, 2014 and sold
it to Bayer AG. Merck also undergoing the restructuring beginning in 2016 where it has planned
a spinoff of women’s healthcare products, biosimilars, trusted legacy brands into a new company
called as Organon & Co., by the first half of 2021. Such initiatives taken by Merck towards
reorganizing organizational strategies and turning into a focused company strengthening its
overall performance.
Figure 14. Merck and its peers’ performance (market cap)72
Above figures 12,13, and 14 show Merck’s performance against its immediate
competitors which since 2017, was majorly driven by the discovery and development of
Keytruda. Merck has globally recognized its brand name through Merck Manual since late 20th
century which is still considered as one of the well-known medical journals across the world. As
mentioned earlier, Merck actively seeks strategic collaboration strengthening its pipeline
productivity. One such collaboration was the diabetes franchise of Merck along with Pfizer to
produce SGLT2 receptor Ertugliflozin. SGLT2 inhibitors have demonstrated that these therapies,
also decrease heart problems and blood strokes in diabetic cases by hemoglobin A1C,73 an
indicator of blood glucose. Combination of Januvia and Ertugliflozin as for controlling AIC is
73 LaMattina, J. (2017). Pfizer fueling growth of competitor’s pipeline. Forbes. Retrieved from
https://www.forbes.com/sites/johnlamattina/2017/06/27/pfizer-fueling-growth-of-competitors-
pipelines/#46ee736a2c9d

STRATEGIC PLAN 31
also suggested by Merck to the diabetic patient community,74 entering niche market dominated
by Eli Lily. Both Merck and Pfizer are seeking three NDAs from the US FDA; one for
Ertugliflozin as a single agent, one for Ertugliflozin and Metformin combination and the third for
Januvia and Ertugliflozin combination.75 Thus, despite operating in highly regulated and
competitive industry, Merck is all set to achieve milestones through its ability of early discovery
and relentless R&D efforts coupled with advanced technology usage.
Recommendations
a. Aggressive collaboration leading to consolidated research fuels the overall growth
through niche opportunities
b. Effective resource allocation coupled with integrated supply chain facilitates overall
growth creating increased value for shareholders
c. Active investments in advanced technologies as well as integration of global R&D
prospects leads to strengthening pipeline productivity
d. Institutionalizing code of conduct and strong organizational culture promoting integrity
boosts morale
e. Restoring brand image through competitive advertising and focusing on CSR initiatives
by increasing resources for Merck GHI, Action Funds as well as funding joint research
Table 6. SWOT matrix for Merck
Strengths
 Stronger global outreach - operating in
more than 125 world nations76
 Remarkable collaboration with peers
boosting drug discovery and delivery
 Explicit R&D building robust pipeline
 Efficient utilization of capital
resources
 Established brand image due to
customer loyalty and product
reliability
Weaknesses
 Plummeted brand trust majorly after
Vioxx scandal77
 Extreme reliance on pharmaceutical
segment
 Overdependence on key products such
as Isentress and Keytruda, for instance
 Manufacturing hindrances due to
ongoing restructuring & inefficient
forecasting78
 Limited global market share
77 Loftus, P., & Kendall, B. (2011, November 23). Merck to Pay $950 million in Vioxx Settlement. Wall Street
Journal.Retrieved from: http://online.wsj.com

STRATEGIC PLAN 32
Opportunities
 Actively implementing beyond-pill
strategy79
 Positive outlook for global pharma
due to increased healthcare spending,
especially in pharmerging nations
 Market penetration through early and
expedited R&D, and delivery.
 Integrating global supply chain
through advanced technology usage
 Active strategic collaborations
strengthening pipeline productivity
and product portfolio
 Increasing market share in biologics
through ongoing spinoff, Organon &
Co
 Boosting CSR initiatives by effective
usage of financial resources
Threats
 Regulatory and statutory hindrances
across the globe
 Economy saturation among developed
nations as well as uncertain world
economy80
 Increasing negative events in animal
health industry due to major outbreaks
such as Ebola and Swine
 Intense competition
 Litigation due to IPR and NDA
 Increasing generic competition;
Undiversified strategy
 Inevitable loss of patent exclusivity of
branded prescription drugs &
vaccines81
Following SWOT alternatives are suggested in line with the external environment
conditions using which Merck could retain its competitive position in the global biopharma
sector.
Table 7. SWOT alternatives for Merck
SO  Expedite integration of its global supply chain network
 Aggressively intertwine real-time demand to globally integrated supply
network using ongoing digital transformation project
WO  Boost health services segment using global outreach as part of beyond-pill
strategy
 Increase market share through increased biologic production by Organon &
Co
ST  Establishing value creating strategic partnerships with peers
WT  Stringent code of conduct ensuring best organizational practices
Products and Services
In February 2020, Merck announced spin-off of its women’s healthcare products,
biosimilars, and trusted legacy brands into a new company, called as Organon & Co., estimated
79 Jain, S. H. (2015). How Pharma Can Offer More than Pills. Harvard Business Review Digital Articles, 2–4.
80 Merck & Co., Inc. (2020). Merck & Co., SWOT Analysis. Market Line Profile. 1-8.
81 Fox, E. (2017). How Pharma Companies Game the System to Keep Drugs Expensive. Harvard Business Review
Digital Articles, 1-8.

STRATEGIC PLAN 33
to complete it by 2021. Thus, today Merck operates internationally in four main segments:
pharmaceutical, animal health, healthcare services, and alliances segments. Product portfolio of
Merck is dependent on four specific areas in medical science which are oncology, infectious
diseases, cardiovascular disorder (CVDs), and vaccines along with animal health products which
includes drugs as well as vaccines.
a. Oncology
Keytruda (pembrolizumab), the Company’s anti-PD-1 (programmed death receptor-1)
therapy, as monotherapy for the treatment of certain patients with 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.82 Keytruda is also used for
the treatment of certain patients in combination with chemotherapy for metastatic squamous and
non-squamous NSCLC, in combination with chemotherapy for HNSCC, in combination with
axitinib for renal cell carcinoma, and in combination with lenvatinib for endometrial carcinoma;
and Emend (aprepitant) for the prevention of chemotherapy-induced and post-operative nausea
and vomiting. In addition, Merck also recognizes alliance revenue related to sales of Lynparza,83
an oral poly (ADP-ribose) polymerase (PARP) inhibitor, for certain types of advanced ovarian,
breast and pancreatic cancers and Lenvima for renal cancers and other different types of
carcinoma both in women and men.
Figure 15. Vaccine revenues for global pharma84
b. Vaccines
Merck is widely known for its vaccines worldwide contributing to about 23% sold across
various nations (figure 15). With the creation of Isentress, one of the first in the international
84 Shen, A. K., & Cooke, M. T. (2018, December 19). Infectious disease vaccines. Nature.Retrieved from:
https://www.nature.com/articles/d41573-018-00011-6

STRATEGIC PLAN 34
market for fighting against HIV has skyrocketed Merck’s performance over years. Some of
blockbuster vaccines discovered and being delivered by Merck include Gardasil, Gardasil 9,
ProQuad, M-M-R II, Varivax, Pneumovax 23, RotaTeq, and Vaqta. Merck supplies 11 out of 16
recommended list by US CDC for the US population.
c. Hospital Acute Care & Immunology
Bridion, Noxafil, Primaxim, Invanz, Cubicin, Cancidas, and Prevymis are some of the
major drugs contributing to more than $500 million in revenues in hospital acute care division of
Merck. While Simponi and Remicade are two major drugs that are contributing to more than $1
billion revenues, boosting overall revenues while significantly contributing to raise in net income
over years.
d. Neuroscience, Virology, & CVDs
Belsomra, an orexin receptor antagonist for treating insomnia with sleep onset and/or
sleep maintenance is one of the historical drugs in the medical field for neuroscience division of
Merck. Isentress/Isentress HD, on the other hand, an HIV integrase inhibitor, as mentioned
earlier is one of its kind in the virology market for treating HIV breakouts. Another drug,
Zepatier for treating adult with chronic hepatitis C (HCV) with genotype (GT) t or GT4 infection
variety are some of the majorly contributing drugs in the virology branch of Merck.
CVD is one of the four main areas of expertise for Merck which includes some successful
drugs such as Zetia, Vytorin, Atozet, Rosuzet, and Adempas marketed both inside the US and
internationally. Zetia and Vytorin have been crucial drawing more than $1 billion each in
revenues over years.
e. Women’s health & Diabetes
Products such as Januvia, and Janumet focused at treating type-2 diabetes both in men
and women are acclaimed drugs in the history of diabetes. Both of have been drawing billions
since their discovery significantly boosting Merck’s position in the international markets.
Women’s healthcare products such as NuvaRing, Implanon, and Nexplanon are some of majorly
contributing drugs affecting Merck’s performance. However, with the new restructuring plan in
place, approved in 2016, Merck is spinning off its women healthcare and trusted legacy brands
along with its biosimilars into Organon & Co., to be finished by 2021.
f. Animal Health (livestock & companion animals)
Merck divides its drugs in animal segment mainly under two categories: livestock and
companion animals. Total revenues for FY19 for the livestock category from both selling drugs
and vaccines accounted for $2,784 million.85 In livestock category, Merck discovers, develops,
manufactures, and markets drugs for treating cattle, poultry, aquaculture, beef cattle. Some of the
significant drugs include Nuflor (for cattle, and swine), Bovilis (for cattle), Estrumate ( for
cattle), Zupero ( for respiratory disease), Zilmax (for treating beef cattle), and Exzolt (for treating

STRATEGIC PLAN 35
poultry red-mite infestations). Merck also developed Allflex Livestock Intelligence system for
livestock animal monitoring, identification, and traceability.
On the other hand, Companion animal division accounts for developing, manufacturing,
and selling drugs and vaccines for companion animals. This division accounts for revenues of
about $1,609 million and $1,582 million in FY19 and FY18 respectively.86 This division directly
assists vets, animal care homes and general public on how to use certain drugs and vaccines for
their pets’ protection through Merck’s Animal Health Portal. Some of the drugs and vaccines
include Bravecto (for dogs and cats), Panacur (used for many animals), Regumate (for treating
horses), and Scalibor (for treating against mosquito and fleas, ticks, and sandflies). Below is the
consolidated revenue information for major contributing products in various segments of Merck
which conclude that pharmaceutical segment is the only business segment striving Merck’s
existence in the market.
Figure 16. Merck’s top product sales87
Long-Term Goals & Objectives
Organizations often ‘design goals which are either extremely difficult or extremely novel,
termed as stretch goals’88 which are seldom communicated and achieved in long-term failing
performance. A 1965 Harvard study suggests that goals and objectives should not only be
designed in line with internal and externalities of specific organization operating in the
respective industry but also be constantly communicated as well as measured for efficacy in
88 Sitkin, S. B., Miller, C. C., & See, K. E. (2017). The Stretch Goal Paradox. Harvard Business Review, 95(1), 92-
99.

STRATEGIC PLAN 36
organizational performance.89 As emphasized by David text, operational goals should be
designed by considering internal strengths and weaknesses combined with opportunities and
threats due to changes in external environment.90 Merck experienced a turmoil in delivering
goals during early 2000s which increased burden on the company as well as Merck was
succumbed to financial loss coupled with litigation, denigrated brand value and plummeting
shareholder trust.
With the outbreak of Vioxx side effects leading to recall of the drug in 2005, followed by
economy downfall damaged the efficiency of Merck. Later on, with the leadership change in
2011 when Kenneth C. Frazier succeeded Richard T. Clarke as new CEO, Merck’s performance
has been substantially increasing through years due to strategic revamping process. Merck, since
2011 has improved its performance at par through their significant changes in capital resource
allocation as well as restructuring procedures. As of October 01, 2014, Merck divested consumer
care unit (MCC) as a move towards creating a focused research-based company. The Board has
also approved restructuring plan in 2016 in which Merck’s global manufacturing network is
undergoing digital transformation where its global supply chain is integrated to the real-time
demand. Under such circumstances, it is essential for Merck to design definite and measurable
set of goals for future operations in order to attain leading position in the global
biopharmaceutical industry. Below listed are five major goals which Merck could implement for
next five years to observe significant change in its performance catering to increasing global
demand.
1. Boosting annual revenues by 4% through expedited digital transformation of global
manufacturing network
Figure 17. Merck’s performance over years
89 Granger, C. H. (1964). The Hierarchy of Objectives. Harvard Business Review, 42(3), 63-76.
90 David, F. R. & David, F. R. (2016). Strategic Management:Concepts & Cases, 16th Edition. Pearson. ISBN: 978-
0-13-416784-8.

STRATEGIC PLAN 37
Earlier in 2016, executive team at Merck approved the restructuring plan for revamping
their manufacturing and global supply chain owing to significant loss in market share due to
product shortage. Merck experienced product shortages and loss in market share especially in the
US during 2014-2015 due to poor demand forecast and irregularities in production scheduling
and delivery.
Table 8. Income statement analysis of Merck9192
Financial Measure 2016 2017 2018 2019
Change in Gross Profit 5.5% 5.52% 5.26% 13.7%
Change in Annual Revenue 0.78% 0.79% 5.41% 10.75%
Change in Cost -6.98% -8.03% 5.75% 4.46%
Change in EBIT -20.10% 21.21% 22.19% 37.06%
According to the statistics reported by FDA and Drug Shortages Task Force (DSTF), 163
drugs were constantly short in the market over a 5-year period in the US which also drugs such
as Keytruda and Varivax from Merck as well as Prevnar from Pfizer.93 Thus, Merck claims to
have more than $500 million of cost savings in the first year after restructuring manufacturing
which could be doubled and quadrupled over years. With effective forecast due to demand
driven supply chain, Merck can conduct apt production activities preventing loss of revenues due
to product shortage. It can be noted from the above graph (figure 17) that Merck’s performance
has been improving since 2017 after the initial stage of executing global supply chain revamping
activities.
Annual revenues (table 8) have soared by the end of 2017 given the approval of
Keytruda, as it majorly contributed to raise in sales since early 2018 which gained neatly $12
billion in 2019 financial year. Various studies show that global pharmaceutical spending will
reach nearly $1.5-$1.8 trillion by 2025 with pharmerging countries as major markets.
MarketLine suggests that global drug industry is expected to raise with 6-8% of CAGR of which
branded drug market is estimated to reach $1.2 trillion in five years.94 Thus, such a progressive
external environment has strong prospect of fueling sales for the drugs made by Merck, thereby
leading to raise Merck’s annual revenues every year by 4% seems to be a feasible and achievable
goal.
2. Implementing stringent code of conduct and organizational policies owing to vision
of positively impacting lives of patients & increased financial outcome
As the third-largest Drugmaker in the US, Merck faced litigation in light of its
nonsteroidal anti-inflammatory drug, Vioxx, after the drug being recalled in 2004 due to
increased heart attack and cardiac arrest when used by the patients. Vioxx scandal caused Merck
91 Merck & Co. (2017) Merck 2016 Annual Review. Retrieved from:
https://www.annualreports.com/HostedData/AnnualReportArchive/m/NYSE_MRK_2016.pdf
93 U.S. Food and Drug Administration. (2020, February 21). Drug Shortages:Root Causes and Potential Solutions..
https://www.fda.gov/drugs/drug-shortages/report-drug-shortages-root-causes-and-potential-solutions
94 MarketLine. (2019). PharmaceuticalsIndustry Profile: Global,1–41.

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