The New Merck's Move on Emerging Markets

Mar 01, 2010

Getty images / Robert Kohlhuber
Success in today's fast-moving pharma business may be as intuitive as choosing the right brood mare for a future day in the winner's circle. If so, then Stefan Oschmann, the 52-year-old German-born, veterinarian-degreed horse racing fan tagged to lead Merck's new business unit for emerging countries, has the background to build a thoroughbred franchise. Handed the slot in November after two decades moving up the ranks to head legacy Merck's European operations, Oschmann's new role is pivotal to the merged company's "triple crown" strategy for long-term organic growth. This includes, in addition to emerging countries, a big stake in biologics and vaccines, which are critical to expanding the customer base in medically underserved, high potential markets like China, Brazil, and India—home to 40 percent of the world's population.

Merck is the proverbial dark horse in the race for dominance in emerging markets, starting from a low base compared to the biggest players in the field. Even with the acquired strength of Schering-Plough's diverse international businesses, the new Merck ranks fifth in size—behind leaders Sanofi, Pfizer, Novartis, and GSK, respectively—with a modest 3 percent market share for medicines in the 17 countries designated by the IMS Midas data base as "pharmerging."

Stefan Oschmann
"Size and scale is critical to managing the complexity of competition in these diverse markets, so considerable resource commitments will be required for the new Merck to deliver on the potential it sees from them," IMS Health SVP Murray Aitken told Pharm Exec. Expanded global reach, beyond the company's traditional focus on the slowing US market, was a key driver for the merger with Schering-Plough, CEO Dick Clark said to analysts posing the same thought at the annual earnings call on February 16. He noted that $3.5 billion in cost cuts scheduled through 2012 will create new opportunities to reallocate resources toward these countries, under an "invest to grow" strategy linked to the deployment of an expanded portfolio of vaccines, OTCs, mature products, follow-on biologics and patented biologics, all focused on serving local unmet medical need.

Nevertheless, executing this change poses its own set of challenges, especially as the distractions of a CEO succession search get underway later this year.

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To Oschmann, progress in building market share follows logically from defining market reach, with the latter based on establishing who the customer is, how best to serve his needs, and delivering results in real time against the competition. His conceptual vision is startlingly simple. Emerging markets are individually distinct but do share two basic characteristics: rapid economic growth and significant unmet medical need. Competitive advantage will fall to those companies who can respond to this mix of wealth and want with skills that prioritize flexibility, in a fluid, highly-charged business cycle; and speed, at a pace that matches patient aspirations for new therapies and better, high-quality care.

"Merck has invested heavily in a more customer-centric business model, but we understand that can mean different things in different markets," Oschmann says. "In emerging countries, how well we execute locally is fundamental to our philosophy and to business success."

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