...Merck: Business Analysis Tamikiia Brown MGT521 July 11, 2011 Sharon Palmitier Merck: Business Analysis Merck is a flourishing research-driven pharmaceutical company, which discovers, develops, manufacturers, and promotes an extensive variety of human and animal health products. Although Merck is one of the biggest pharmaceutical companies of the world, they still come across problems today while striving to sustain a lead against its competition. Merck has achieved success with its lengthy history of breakthrough drugs and the development of three significant pharmaceutical products: antibiotics, vitamins, and hormones. Merck’s success relies heavily on its management and how they modify the business model in place to that of the ever-changing economy. Influence of Economic Trends The global pharmaceutical market is likely to undergo a wide variety of changes with new competition arising in India, China, Malaysia, South Korea, and Indonesia. This new competition has a growing economy and has made a difference between the product cost and disposable income of consumers. According to NASDAQ (2011),“ Global pharmaceutical market sales are expected to grow at a 4-7% through the year 2013 largely being driven by the growing access to health care in emerging economic regions” (para. 2-5). Short-term growth within this area is stimulated by the United States market, as it continues to be the largest pharmaceutical market in the world. A focal point on research and...
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...Merck – Business Analysis MGMT 521 October 17, 2011 Dr. Patrick E. Murray Merck – Business Analysis A mutual fund manager invests in many securities. Experiences and success open new opportunities to future investments. Merck is one of the largest and well-known pharmaceutical companies in the world. The decision to invest is determent on many factors. This includes a SWOT analysis of Merck and taking information from this analysis to decide whether to invest. Internal and external stakeholders along with their wants and needs are identified. Finally, an explanation of Merck's handling current and future stakeholder needs is determined. This research helps in making the decision to invest or not with Merck. SWOT Analysis |Strengths |Weaknesses | | | | |A diversified product portfolio |Reduction in OTC (over-the-counter) products | | | | |Global efforts to decrease maternity mortality |Possible reduction in workforce | |ration | | | | | ...
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...for $17 billion. This acquisition will boost Merck’s position in the global life sciences industry, which is valued at over $130 billion. Merck expects the deal to generate $340 million in synergies by the end of 2017. Merck’s business focuses on pharmaceuticals, liquid crystals, and laboratory chemicals and equipment. As we know Sigma-Aldrich makes chemicals and biochemical used in scientific research, biotechnology, drug discovery, pharmaceutical development and diagnostics, and high-technology manufacturing. The merge between both Merck and Sigma-Aldrich, will allow them to sell a broad array of products, which will need to be analyzed product-by-product for competitive overlaps before U.S. antitrust regulators give the deal the green light. This accusation has its own challenges like every other business such as risk and uncertainty, which include financial and business environment risks. Merck and Sigma-Aldrich offer an assortment of complementary products in the life sciences sphere. Public information, however, indicates that the only product on which the companies currently compe te may be components of liquid crystal displays (LCDs). Merck produces liquid crystals and its U.S.-based life sciences division states it is the leading global manufacturer of LCD materials. Sigma-Aldrich also makes liquid crystals and other chemical liquid crystal materials. Merck’s acquisition of U.S.-based Sigma-Aldrich expands Merck’s geographic footprint and involves less direct...
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...medicines which include vaccines, biologic therapies. Merck’s products are marketed directly and through joint ventures. 2. Merck’s operating risks: Merck’s operating risks include recently expired and expiring patented medications which are and soon will be facing market competition from generics, and fewer that optimal products in the development stage to be brought to market. Additionally, some European countries, in an effort to reduce and curtail costs as they are coping with the effects of austerity measures, are imposing a mandatory switch to generic drugs. Some disappointing results of new products in the development stage are posing a risk to the company that needs to stay in compliance, particularly in the face of law suits for past and current medications under Merck’s patent. With changing environment in the health care field in the US, Merck’s efforts to expand operations and distribution to developing countries, also posed a challenge to the company, as developing regions, such as Africa and developing countries such as India, China, Russia and Brazil, that may not offer a stable political, regulatory or free market environment conducive to the desired expansion. The payment terms for developing countries tend to be longer than the terms granted to buyers in the US, which could translate in increased accounts receivable, and Days Sale Outstanding, which could result in higher required Working Capital. 3. Merck’s financial risk (the debt to total capitalization...
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... 1668 1827 Heinrich E Merck transformed the business and Merck began manufacturing 1887 Merck merged with Philadelphia pharmacy Sharp & Dohme 1891 The renamed company Merck & Co. opens for business 1953 2009 Merck merged with ScheringPlough Corporation and Organon BioSciences Pharmaceutical Industry • The average drug development time is over fifteen years with an average R&D expenditure of $800 million. • The FDA requires three phases of testing to assess safety and effectiveness. o Test results dictate what is displayed on the drug’s label and how the doctor will prescribe it. • Follow-up studies (Phase 5) can be performed to assess the drug after market release (Phase 4) and amend the drug label for improved sales. Pharmaceutical Success • 1981 to 2001, Merck experienced an upward trend on several industry metrics. • Their Return on Sales (ROS) for their Human Pharma line peaked at just over 40% in 2001 with an average of 24% . • The early 1990’s exhibited a downward trend just prior to Gilmartin assuming the role of CEO. Pharmaceutical Success • Cumulative Stock Return over the same period had a compound annual growth rate (CAGR) of 45%. • Again, the early 1990’s exhibited a downward trend, the first in over a decade. Measures of Success Merck had the most patents awarded in both the 1980’s and 1990’s. From 1994-2001, Merck’s patent volume exemplified their scientific edge. Problem...
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...Executive Summary RECOMMENDATION My recommendation to the Board is to approve the merger with Medco. Medco is one of the top benefit management companies and with the right preparation prior to merger the downside of the merger can be minimized. The potential upside given industry trends and where it is headed are too great to ignore. Medco’s position in the market and success as a company, have proven it would be a valuable asset. The insight it can give Merck and the access to the market to increase share and give insight to Merck’s drug treatments will be invaluable. MARKETING & SALES CONSIDERATIONS Currently Merck has to send out its own reps to doctors where Medco does the same to doctors and companies. This will eliminate that area for Merck and result in a $1 billion annual savings in redundant marketing costs by a reduction of Merck’s sales force by using the marketing strategies of Medco’s database and ideology of marketing to plan managers as opposed to doctors. OPERATERATIONAL CONSIDERATIONS Medco’s database that allows Merck to identify prescriptions that can be switched from competitors to their brand will help increase market share while weakening competition. Merck pharmacists will be able to suggest these switches to the patient’s doctor. FINANCIAL CONSIDERATIONS Medco has about 33 million customers in the United States and manages 95 million prescriptions a year for government, unions, insurance firms and companies. Revenues for Medco were...
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...Merck & Medco You Decide Assignment Merck’s acquisition of Medco: Merger Analysis and Recommendation by Marzena Porebski . Table of Contents 1.0 INTRODUCTION 2 2.0 THE COMPANY OVERVIEW 3 2.1 Merck & Company 3 2.2 Medco Containment Services Inc. 5 2.3 The Companies Advantages 6 3.0 MERCK & MEDCO MERGER 7 3.1 Acquisition Details 7 3.2 Merger Analysis 7 4.0 CONCLUSION 11 5.0 APPENDIX 12 5.1 Financial Reports 12 5.2 Sales of Drugs and Prices 13 5.3 Merger and Acquisition Activity 14 5.4 Market Share 15 5.5 Additional Documents 15 6.0 References 15 1.0 INTRODUCTION Mergers and acquisitions occur because directors see benefits that could come from combining two or more businesses, which could improve the company’s overall financial performance. Mergers and related acquisitions have occurred in the United States in a series of waves over the last century or more, as can be seen on the chart in Appendix 5.3. Over time, mergers have become popular and in recent times, the growth has been steeper outside of the United States. One of many reasons why mergers occur is due to macroeconomic factors that contribute to a merger wave such as economic conditions, credit availability, industry shocks, government policy changes, competitive business environment, innovation, technological developments, or globalization (Thompson). Mergers and acquisitions can generate cost efficiency through economies of scale, can increase the revenue through gain in...
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...Case FIN561: Mergers and Acquisitions You decide: Merck Acquition of Medco Vikash Sharma In July 1993, Merck & Co., the largest pharmaceutical company in the world at that time, acquired Medco Containment Services for $6.6 billion. Medco was the largest prescription benefits management company. With the drug industry experiencing the effects of managed care, pharmaceutical companies had to adapt to new means of distribution. Merck realized that the decisions of what treatments and what drugs should be used in patients’ care were increasingly being influenced by the managed care environment rather than by physicians. In the world of managed care, it was no longer sufficient to market just to physicians. The successful pharmaceutical companies of the future would be companies that were able to adapt to the changed distribution system. This was a very strategic move my Merck and this vertical integration was a move that all its competitors were also targeting. In 1994 SmithKline acquired DPS for $2.2B and later that year Eli Lily acquired PCS for $4.1B. In order to understand why Merck acquired Medco, which was a pharmacy benefits management (PBM) company, we need to look at the role of this so-called PBM’s. These PBM’s have several functions * Process Pharmacy claims i.e. check for eligibility when an order is placed at the retail store, check for copayment etc * Set up Pharmacy benefit, which is to apply PBM codes to what drugs are covered under a particular...
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...Merck’s acquisition of Medco: Merger Analysis and Recommendation by Marzena Porebski . Table of Contents 1.0 INTRODUCTION 2 2.0 THE COMPANY OVERVIEW 3 2.1 Merck & Company 3 2.2 Medco Containment Services Inc. 5 2.3 The Companies Advantages 6 3.0 MERCK & MEDCO MERGER 7 3.1 Acquisition Details 7 3.2 Merger Analysis 7 4.0 CONCLUSION 11 5.0 APPENDIX 12 5.1 Financial Reports 12 5.2 Sales of Drugs and Prices 13 5.3 Merger and Acquisition Activity 14 5.4 Market Share 15 5.5 Additional Documents 15 6.0 References 15 1.0 INTRODUCTION Mergers and acquisitions occur because directors see benefits that could come from combining two or more businesses, which could improve the company’s overall financial performance. Mergers and related acquisitions have occurred in the United States in a series of waves over the last century or more, as can be seen on the chart in Appendix 5.3. Over time, mergers have become popular and in recent times, the growth has been steeper outside of the United States. One of many reasons why mergers occur is due to macroeconomic factors that contribute to a merger wave such as economic conditions, credit availability, industry shocks, government policy changes, competitive business environment, innovation, technological developments, or globalization (Thompson). Mergers and acquisitions can generate cost efficiency through economies of scale, can increase the revenue through gain in market...
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...You Decide: Merck’s Acquisition of Medco Stacey D. Lawson FIN 561: Mergers & Acquisitions Keller Graduate School of Management Professor Gene Smith Fall 2015 Executive Summary Merck & Co., Inc. is one of the largest pharmaceutical firms in the world. The company is known for its discovery, development, production, and marketing of products and services that are geared towards the maintenance and restoration of health. The company’s business focuses on two areas: human and animal health products and Services and Specialty Chemical products. Medco Containment Services, Inc. is one of the largest pharmacy benefits manager (PBM). The company was mainly responsible for the management of drug benefits for more than 65 million Americans whose prescriptions were filled at retail drug stores or the company’s mail order business. Merck’s acquisition of Medco was one of the largest health care industry mergers, as well as one the largest U.S. corporate unions in the early 1990’s (Olmos, 1993). In addition the merger provided Merck with access to Medco’s technology and information. With the merger they acquired more than 1,000 pharmacists who decided or advised physicians on how prescriptions should be filled (Tanouye, 1993). This merger allowed Merck to increase its pharmaceutical sales through the use of patient information from Medco’s database. The merger was expected to solidify Merck’s presence in the pharmaceutical...
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...Merck (in 2009): Open for Innovation? The pharmaceutical company undergoes new drug advances, conflicting regulatory laws, and tough economic situations. With all these pressures evolving, Merck & Company felt the need to pursue open innovation strategy because the biotech company is too complicated to navigate on its own. There is so much useful information within and outside of company that would be great advantage to the company. Creating new partnerships, discovering new technological trends and classifying new business opportunities are the leading strategic reasons to take part in open innovation. An open innovation strategy allows companies to contribute ideas from external sources quicker than ideas created contained by its own company. Merck’s sole purpose behind using open innovation is keep his pharmaceutical company is to stay competitive. An open innovation strategy would allow the company to source new ideas externally and at a faster rate. While Merck had been moving toward an open innovation strategy, he has to convince his company and their leaders to embrace research and development from other research organization and universities. It is obvious that Merck should pursue an open innovation strategy for the company to overcome challenges. Open innovation lets many people from dissimilar disciplines to challenge the same problem at the same time and not consecutively. In collaborative technology, it can save lots of time. It takes a lot of time to come up...
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...management and directors who were able to see in the future and overcome all obstacles and competition and positioned the company as world leader. Ladies and gentlemen of the board, we are experiencing a rapid change in the industry of health-care and a different dynamic induced by the fierce competition not only in the U.S. but also all over the globe. Falling drug profits and increase spending in research and development are challenges that we have to face. As a result, analysts and CEOs in health-care share my view that there will be only few big drug makers left in the global market. Therefore, it is my job to find opportunities and growth to maintain our leadership and role in the industry and maximize our shareholders’ wealth. Merck’s acquisition of Medco is a bold step that will be the initiation of new era that will reshape the health-care industry and many rivals will follow in the future. After discussion with our top executives who casted their views and concerns over the merger. I have gathered information that weighed on my proposal and recommendations. There are several factors to consider in evaluating the cost and benefits of this vertical transaction that I will discuss after a brief description about the target firm. Medco is a leader in prescription benefits management PBM and mail-order drugs; it has about 33 million customers in the US which accounts to 26% of all patients covered by a benefit plan and manages 95...
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...MERCK ACQUISITION OF MEDCO Thomas Banks F561 Mergers & Acquisitions Professor Watson May 26, 2013 Introduction On July 28, 1993, Merck & Company, then the world’s largest drug manufacturer, announced that it planned to acquire, for $6.6 billion, Medco Containment Services Incorporated, the largest prescription benefits management company (PBM) and marketer of mail-order medicines in the United States. This merger reflected fundamental changes taking place in the pharmaceutical industry. GROWTH IN MANAGED CARE Managed care plans typically provide members with medical insurance and basic health care services, using volume and long-term contracts to negotiate discounts from health care providers. In addition, managed care programs provide full coverage for prescription drugs more frequently than do traditional medical insurance plans. Industry experts estimate that by the turn of the century, 90% of Americans will have drug costs included in some kind of managed health care plan, and 60% of all outpatient pharmaceuticals will be purchased by managed care programs. The responsibility for managing the provision of prescription drugs is often contracted out by the managed care organizations to PBMs. The activities of PBMs typically include managing insurance claims, negotiating volume discounts with drug manufacturers, and encouraging the use of less expensive generic substitutes. The management of prescription benefits is enhanced through...
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...Executive Summary The pharmaceutical company Merck has traditionally sold medicines and products that have been developed through its internal research. So, it is not surprising to see that the company spends quite a large amount of money on research. This is reflected in its financial statement as given in the exhibit 1. The R&D expenditure is about 7% of Merck's revenues. The life cycle of a drug takes it from the research labs to three phases of testing, each increasingly complex, then through a rigorous Food and Drug Administration (FDA) approval process before it can be marketed and sold. The entire cycle of testing from the time the drug has been lab tested to market can take up to seven years. And, there is inherent risk involved in any drug making through this rigorous process of testing. The most popular and most profitable drugs from Merck include Vasotec, Mevacor, Prinivil and Pepcid, generating $5.7 billion in worldwide sales, in the year 2000. The patents for these drugs stand to expire in 2002, making the formula for these drugs available for generic drug makers. This would cut into the anticipated sales of these drugs, since Merck would no longer be the sole manufacturer of these drugs. Any new drug will take longer than the two years to become marketable. In order to offset this, Merck is considering the purchase of the licenses for Davanrik from LAB Pharmaceuticals. Davenrik has just completed pre-clinical development and is ready for the clinical approval...
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...Merck Acquisition of Medco Study and Analysis Abstract Corporate mergers and acquisitions (M&A) have become popular across the globe during the last two decades due to globalization, liberalization, technological developments, and competitive business environment (Fisher & Siburg, 2009). The synergistic gains from M&A may result from efficient management, economies of scale, profitable use of assets, exploitation of market power, and the use of complementary resources (Mitchell et al, 2004). Theoretically it is assumed that mergers improve the performance of the acquiring firm due to increased market share and synergy impact. This paper reviews the acquisition of Medco Medco Containment Services, Inc. (Medco) by Merck & Company (Merck) and cites reasons for acquisition of Medco. Merck's acquisition of Medco represents a $6.6 billion bet on where the future of the pharmaceutical industry lies (Nichols, 1994). In today's managed-care environment, Vagelos (CEO of Merck in 1993) argues, the company that best controls the information flow from doctor to patient to pharmacist to plan sponsor has the greatest chance of succeeding. Medco has information on 38 million patients, which allows Merck to learn a lot more about how its drugs are prescribed and used and, ultimately, how effective they are in fighting disease. Owning Medco can also help Merck increase its market share in an industry in which no company has more...
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