Analyze Merck’s Innovation Strategy. Does Merck’s Innovation Engine Need Fixing

Analyze Merck’s innovation strategy. Does Merck’s innovation engine need fixing?

Why or why not?

Merck being one of the most successful companies of the pharmaceutical industry faces a tough peril with various threats in its success path. Primarily being a R&D company doing in-house innovation by employing the best talent in the industry, Merck’s CEO now intends to go beyond the traditional closed R&D mindset, and move into an open source innovation.

Merck’s current innovation strategy is a closed innovation strategy. Figure 1 shows the positioning of the firm with respect to the framework taught in class. The core value of Merck has been to invest heavily in R&D, employ superstar scientists and making billions of dollars through introducing blockbuster drugs into the market and protect them via patents.

From the late 80's to early 90's, Merck had huge profits and sales through biochemistry drugs that were seen as breakthrough drugs in this new market. With patent laws becoming very weak and of shorter duration, it was easier for competition to mimick Merck’s blockbuster drug and make it a generic drug. Merck in currently in this stage, where many of its patents are about to expire and there is high pressure on the senior management’s end to take some necessary action to keep up with its numbers and keep pumping new drugs into the market. By assessing some strengths, weaknesses, opportunities and threats (SWOT Analysis) of the firm itself we can analyze if Merck should continue its in-house innovation strategy vs the open innovation strategy.

Strengths of the firm:

Blockbuster drugs:

Merck has a long history of creating the “blockbuster” drugs. As mentioned in the case, Merck was one of the largest producers of prescription drugs in the world in 1891. By 1989, Merck had grown by leaps and bounds, expanding to six divisions, 70 business units, 13000 products, 21000 employees, and production facilities in 27 countries. Merck created a world class reputation for itself in revolutionizing pharmaceutical research. The success of Merck's drugs such as Fosamax and Zocor not only has shown Merck's reputation in the past but it also increased sales and profits to imaginable numbers. Merck has the resources, money and the knowledge base to create the next blockbuster drug.

Top Talent:

Merck has always been a research powerhouse, attracting the best talent in the industry. It has the industry’s most respectable scientists, who have won Nobel prizes for their contribution to the field of medicine. The culture of this organization being more academic, and university like fueled the scientists to explore more areas of their own interest.

These scientists are not an easily replicable asset, and Merck needs to create platforms to utilize the assets and create successful business models for the company.

Weakness:

Duration of drug development:

As per the case, the duration of drug development takes approximately 12 years, with a cost of exceeding $1 billion. It is also estimated that only 2.5-5% of the newly discovered compounds make it into the pre-clinical testing phase. And only 2% of those enter into the three phases of clinical testing. This shows the risk involved in development of a new drug, considering the cost of R&D and opportunity cost of failures.

Opportunities:

Mergers and Acquisitions:

Merck has found a way to grow through acquisitions. It has been acquiring biotechnology companies which are in the later stages on the drug development process. This is good for the pipeline of the drugs that they want to release into the market. They could utilize the best in class talent in their organization to help fuel the process of drug development and bring to market the next “blockbuster drug”.

Strategic partnerships and alliances:

Merck’s CEO is focusing on external relationships and broadening new drug fields with other organizations such as universities. Collaborating with outside partners can increase drug discoveries, and provide better technology. Consider