Parsing the Off-Patent Label

The team is still looking carefully at how best to position Merck in the established off-patent small-molecule segment, particularly as Sanofi and others have big footprints there. "We want to continue to be seen as a sponsor of real innovation. So our approach has to be selective." At any rate, Oschmann believes that for emerging markets the distinction between patent and off-patent is an artificial one, for two reasons: the supply chain doesn't differentiate, with wholesalers and pharmacists handling a broad range of product in the same way; and physicians and patients care less about patent status than the reputation for quality associated with the corporate logo—"our MSD name is the best brand identifier," he contends.

A logical path from this quality metric is to seize the potential of follow-on biologics, a segment where Merck has already made commitments to secure market leadership in the US but where there is potential in sourcing targets in developing countries as well.

The second element to capitalize on is the strength of the broader portfolio of products created by the combined companies. A no-brainer is a more substantial emphasis on vaccines. Though challenged now by Pfizer with its Prevnar 13 blockbuster, Merck still holds a global leadership position in vaccines for pediatrics; one where the birth cohort for China and India alone—an indicator of potential market size—is larger than the rest of the world combined. Likewise, due to slow buildup and some pricing uncertainties the company has yet to tap a fraction of the local potential for Gardasil in preventing cervical cancer, estimated by the WHO as the leading cause of cancer deaths for women in developing countries.

A rich vein also exists in the OTC retail business, where Merck can build on Schering's consumer portfolio in key regions like Latin America and the Middle East. At present, the business amounts to a mere 3 percent of the combined company's worldwide sales, but the perceived opportunity from OTC as a platform for growth in the emerging markets means that divesting it is not an option, despite the heavy competition from established big pharma players like J&J.

The appeal of the consumer business is doubled by the fact that in many, if not most, emerging markets, consumers are used to paying from their own pocket for health care and now have more discretionary income to spend. There are also strong complementarities with Merck's presence in prescription-based endocrine/women's health therapies.

Last, but certainly not least, is the goal of seizing opportunities from Merck's inventory of patented innovative products geared to the treatment of chronic disease. This includes therapies for diabetes, cardiovascular disease, hypertension, asthma, and inflammatory disorders. Three quarters of the estimated 250 million people with diabetes live in the developing world.

"Arguably few other big pharma companies have an inventory of existing small molecule medicines better suited to fit the primary care health challenges of these countries," Albert Wertheimer, director for health services research at Temple University, told Pharm Exec. He sees a big potential for tie-in with cost-effective prevention strategies that benefit emerging markets because they substitute for acute care services that many patients cannot afford.

Position on Pricing for the Poor

Oschmann says the company is studying how to link its portfolio offerings to a new affordable pricing model that will increase access. "Neglected populations in emerging markets are a commercial opportunity. It's wrong to see it as an isolated group of poor individuals because the communities that the poor live in are sizeable and collectively they have real assets to buy better health care."

The company is looking at new, low cost options to the provision of its small molecule drugs and vaccines geared to this "bottom of the pyramid" consumer segment. It is committed to working with governments as well, evidenced by management's decision to be one of the few foreign companies to tender as supplier to China's new Essential Drug List (EDL) of low-cost medicines. A former Schering-Plough facility in Mexico is also being recast to consider new medicines formulations to suit the specialized needs of purchasers in emerging markets. Work will be conducted in tandem with the search for efficiencies in manufacturing and the supply chain.