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Merck: Open for Innovation

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on 14 November 2013

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Transcript of Merck: Open for Innovation

PRINCIPLES OF CLOSED INNOVATION
The experts in the industry work for us.

R & D must be done by ourselves.

We will be the first ones to introduce it to the market

We will win if we discover, develop, and manufacture the best molecule.

Intellectual property must be controlled by us
Merck: Open for Innovation?
The Structure of the Pharmaceutical Industry—
The SCP Model

- Many firms

- Different products and services

- Monopoly power over pricing

INDUSTRY STRUCTURE

- The Merger

- Open Innovation

- Making R&D bigger




- Mitigate risk

- Increased market share and market capitalization

PERFORMANCE
FIRM CONDUCT
One of the largest and most profitable industry in the world
External research and development

Work with people inside and outside

Share intellectual property with others

No need to originate the molecule

Focus on long run development

Combine Inside and outside’s ideas &
Open business model to combine power to:

-produce the best product
-create significant value for the company
-provide a wider range of benefit
e.g research in some extreme medication
- cancer treatment

Use the existing information and techniques
-Save time and save manpower
-Reduce cost of production

Yes! Because…


Rise of Internet -> Increased mobility of professionals & knowledge

Introduction of a new legislation -> shorter exclusivity periods
Huge market can be opened up
THE CLOSED-INNOVATION MODEL
Does Merck’s innovation engine
need fixing?
MONOPOLISTIC COMPETITION
Health of people stands in the middle

Not aiming for high profit

- 51000 employees
- Sales revenue: $18.5 billion
- Market value: 32.6 billion
- 60% patents protected =>2017
- 55% of SP’s new drugs originating from external sources
- Drugs produced in SP:

ATTRACTIVE
OR NOT
HOWEVER
The entry barrier of the high cost, time needed with R&D and government regulation are big obstacles.

OPEN INNOVATION
Merck’s corporate
philosophy
Schering-Plough (SP)
Global Ranking of Pharmaceutical Firms
Effects of SP merger to Merck’s moving strategy
- Bigger market share of the global pharmaceutical industry
- Remove boundaries
- Increase ability to deliver new important medicines
- Increase productivity

POSITIVE
NEGATIVE
- Incredibility between two organisations
- Increased complexity of Merck's structure
- No correlation between R&D budget and productivity
- Number of projects developed decline in merged companies

MERCK'S SALES STRUCTURE
SWOT ANALYSIS
- Global presence

- Large R&D department

- Successful collaborations

- Introduction of revolutionary drugs

STRENGHTS
WEAKNESSES
OPPORTUNITIES
THREATS
- Patent expiry

- Low liquidity, high R&D costs

- Charges by the government due to violations of rules and regulations
- Strong potential growth for vaccines business

- Technological development -> open innovation

- Demographic and social changes

- Expansion into new markets

- Growth after the SP merger.



- International laws on patents

- High generic competition

- Other pharmaceutical companies

- Competition in research from non-profit, government and academic institutions

- Increased mobility of knowledge

- Increasing costs of R&D

- High possibility of new drug failure

COMPETITIVE ADVANTAGE
- Merging with SP

- Cutting costs and restructuring ->
by 2015 reduce annual operating expenses by ~$2.5B, lay off 13,000 staf
f

- Charitable activities
MERCK
INTRODUCTION
Open innovation
vs
customers needs & shareholders
Merck Scientists searching for and evaluating opportunities from the outside world.

Responsible for:
-Execution of joint research programs
-Close working relationship with collaborators on a daily basis
-Application of Merck’s industry drug discovery expertise to early stage research collaborations


External Discovery and Preclinical Science (XDPS)
Open innovation a key to success
IMPLEMENTATION ISSUES
OVERCOMING CULTURAL ISSUES
- Internal and external cultural issues

- Lack of internal commitment

- Communication barriers

- Lack of appropriate skills - managing intellectual property

- Global healthcare leader

- 80 000 employees worldwide

- Operations in more than 140 countries

- 2012 revenue - $47.3 billion

- 2012 R&D expense - $7.9 billion

Companies became public about their pipelines

Major strategy is collaboration and sharing the risk
Merck adopting Open Innovation
MONOPOLY
PERFECT COMPETITION
OLIGOPOLY
Start from the top of hierarchy


Informal networks, publications, conference attendance and business arrangements


Merck today
Savings and cuts

Declining sales & high competition in diabetes

Focus on core therapeutic areas

Focus on China, Japan, Europe, the U.S. and Canada

Paula Kiernozycka
Mathilda Chihei
Alice Koh
Cynthia Yin
David Kuan
Full transcript