Figure 5. Positioning map of Merck and peers

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.[footnoteRef:1] [1: D’Aveni, R. A. (2007). Mapping Your Competitive Position. Harvard Business Review, 85(11), 110–120.]

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 are the general characteristics possessed by various companies in an industry, as explained by Kotler.[footnoteRef:2] 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. [2: Kotler, P. & Keller, K. L. (2015). Marketing Management. Fifteenth Global Edition. England, UK: Pearson Education Limited.p.302.]

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 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.

‘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.[footnoteRef:3] 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. [3: Kotler, P. & Keller, K. L. (2015). Marketing Management. Fifteenth Global Edition. England, UK: Pearson Education Limited.p.300.]

Figure 7. Forecast of global prescription drugs demand[footnoteRef:4] [4: 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]

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 Antelliq[footnoteRef:5] 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 AG[footnoteRef:6], Eisai[footnoteRef:7], AstraZeneca[footnoteRef:8] for developing, discovering, and delivering drugs such as Lynparza, Lenvima, and Bravecto in various international markets. [5: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf] [6: 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] [7: 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] [8: 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#]

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 million[footnoteRef:9] 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.[footnoteRef:10] In addition, Merck also indulges in developing state-of-art technology hubs, since 2012, such as 3D printing tech labs across five global locations[footnoteRef:11] 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. [9: Abel, J. (2019, June 27). Digital Transformation at Merck Pharmaceuticals. ARC Advisory Group. https://www.arcweb.com/blog/digital-transformation-merck-pharmaceuticals] [10: 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] [11: 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/]

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 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.[footnoteRef:12] 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. [12: 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]

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 markets[footnoteRef:13] [13: Merck & Co. (n.d.). Merck & Co 2019 Annual Review. Retrieved from: https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MRK_2019.pdf]

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 healthcare spending is to be increased to nearly $1.6 trillion by 2025 with a CAGR of 4-5%[footnoteRef:14] indicating the growth opportunity for all the top ten global pharmaceutical firms including Merck. [14: 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/]

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.[footnoteRef:15] 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.[footnoteRef:16] 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. [15: Rickwood, S. (2017). Prescription Medicines Trends: An Overview and Perspective on Two Therapy Areas. IQVIA. https://www.who.int/phi/2-SarahRickwood.pdf ] [16: Rickwood, S. (2017). Prescription Medicines Trends: An Overview and Perspective on Two Therapy Areas. IQVIA. https://www.who.int/phi/2-SarahRickwood.pdf ]

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 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.[footnoteRef:17] [17: Market Beat. (n.d.). Merck & Co., Inc. Stock Forecast, Price & News. Market Beat. Retrieved from: https://www.marketbeat.com/stocks/NYSE/MRK/]

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.[footnoteRef:18] 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. [18: Merck & Co. (2020). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf]

Figure 9. Focused markets for global pharma forecast[footnoteRef:19] [19: Desjardins, J. (2019, January 30). Visualizing the Future of the Pharma Market. Visual Capitalist. Retrieved from: https://www.visualcapitalist.com/future-pharma-market/]

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 type[footnoteRef:20] [20: CSI Market. (n.d.). Merck & Co Inc. CSI Market. Retrieved from: https://csimarket.com/stocks/markets_glance.php?code=MRK]

Figure 11. Peer comparison of Merck[footnoteRef:21] [21: Morning Star. (n.d.). Pharmaceutical Industry Review. https://www.morningstar.com/ ]

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, 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 generation[footnoteRef:22] [22: Top 10 pharma companies by revenues in 2019. (2020, March 4) https://www.beckershospitalreview.com/pharmacy/top-10-pharma-companies-by-revenue.html]

Figure 13. Net income trend for FY 2019[footnoteRef:23] [23: Morning Star. (n.d.). Pharmaceutical Industry Review. https://www.morningstar.com/]

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 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)[footnoteRef:24] [24: Merck & Co. (2020). Merck 2019 Annual Review. Retrieved from: https://s21.q4cdn.com/488056881/files/doc_financials/2019/q4/2019-Form-10-K-Final.pdf]

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,[footnoteRef:25] an indicator of blood glucose. Combination of Januvia and Ertugliflozin as for controlling AIC is also suggested by Merck to the diabetic patient community,[footnoteRef:26] 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.[footnoteRef:27] 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. [25: 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] [26: 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] [27: 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]

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

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
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