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About Schering-Plough

Merck makes medicines for a number of maladies, from stuffy noses and asthma to hypertension and arthritis. The pharmaceutical giant's top prescription drugs include asthma medication Singulair, diabetes drug Januvia, anti-inflammatory Remicade, cholesterol combatants Vytorin and Zetia, and hypertension fighters Cozaar and Hyzaar. In addition, Merck – more... makes childhood and adult vaccines for such diseases as measles, mumps, hepatitis, and shingles, as well as veterinary pharmaceuticals through Merck Animal Health. The company's OTC drug and personal care offerings include Claritin allergy pills and Dr. Scholl's foot care products.

Geographic Reach

Merck markets its products in over 140 countries, with its largest market -- the US -- accounting for more than 40% of revenues. Some international products are marketed under the MSD (short for Merck Sharp & Dohme) brand. 

Operations

Merck has a broad portfolio of marketed and development-stage pharmaceuticals in areas including respiratory health, inflammation, immunology, metabolism, infectious disease, cardiovascular, vaccines, women's health, endocrinology, oncology, neurology, and ophthalmology. Within those categories, Merck has three core growth areas -- biologics, vaccines, and emerging markets -- that are part of its main Global Human Health prescription division. The company's structure includes four additional divisions: Animal Health, Consumer Health Care, Merck Manufacturing, and Merck Research Laboratories.

Best-selling drugs include Singulair, which reached some $5.5 billion in annual sales in 2011, and type 2 diabetes drug Januvia, which brings in more than $3 billion in annual revenues. Additional bestsellers earning more than $2 billion include Remicade and Zetia, while $1 billion top sellers include Vytorin, Cozaar/Hyzarr, allergy treatment Nasonex, HIV therapy Isentress, diabetes drug Janumet, and HPV vaccine Gardasil. 

Despite its blockbuster successes, Merck is subject to the same threat to its bottom line as all pharmaceutical companies large and small: patent expiration. For instance, the company lost patent protection for its Cozaar and Hyzarr treatments in 2010, and its No. 1 drug Singulair lost patent protection in August 2012. 

Sales and Marketing

Merck markets its products through direct sales forces and international distributors. Customers include drug wholesalers, retailers, pharmacies, government agencies, and health care providers. Some of Merck's products are sold in partnership with other drugmakers. For instance, J&J markets anti-inflammatory drugs Remicade and Simponi in the US, while Merck has marketing rights in most international regions.

Financial Performance

Overall Merck's growth and cost-cutting measures have balanced out patent protection losses to produce stable financial results for the firm, including a 4% revenue increase to some $48 billion in 2011, which was largely attributed to increased sales of select pharmaceuticals including Januvia, Janumet, Singulair, Isentress, and Gardasil. The acquisition of Schering-Plough in 2009 nearly doubled revenues in 2010. Net income also increased in 2011 to some $6.3 billion, a vast improvement over 2010 when profits took a nosedive primarily due to lingering acquisition and integration costs from the Schering-Plough merger.

Strategy

The increasing threats of generic competition on top blockbusters require Merck to push new products through its development pipeline, with a focus on bringing its most promising late-stage development candidates to market to replace its aging blockbusters. Successful new drug launches in 2010 included asthma treatment Dulera in the US and atrial fibrillation medication Brinavess in Europe. In addition, in 2011 Juvisync was launched for diabetes in the US, contraceptive Zoely was launched in Europe, and hepatitis C drug Victrelis was introduced in both regions. In 2012 the FDA approved Zioptan for glaucoma treatment.

Current development programs are focused on ailments in fields such as cancer, cardiology, women's health, immunology, infectious disease, metabolism, ophthalmology, respiratory ailments, and neurological conditions. Biotech R&D includes programs in areas such as monoclonal antibodies (single-source proteins) and RNA interference (RNAi), a gene silencing process, as well as the development of follow-on (generic) biologics. Merck also works to gain approval for new indications on existing drugs, and it is increasingly seeking out collaboration, licensing, and outsourcing agreements in the R&D arena to cut costs.

Research isn't the only area where partnerships are benefiting Merck: The company took solid steps toward increasing its presence in emerging markets in 2010 by partnering with Adcock Ingram Holdings to jointly promote and distribute selected OTC and prescription products in South Africa. In 2011 Merck moved to further expand in emerging markets by forming a joint venture with Sun Pharma to develop and sell branded generic medicines in high-growth markets, and in 2012 it teamed up with Supera Farma to sell prescription drugs in Brazil. Other target markets include China, where Merck plans to open a new R&D center, and Japan.

While Merck's leadership team remains committed to growth efforts in the core areas of biologics, vaccines, and emerging markets, it is also focused on reducing operating expenses to offset losses from patent expirations. Since its 2009 merger with Schering-Plough, Merck has been conducting integration efforts to combine the two massive organizations, which resulted in an estimated 17% reduction in the combined workforce during 2009-2012. In 2011 Merck announced that merger restructuring and other cost-cutting measures would result in an additional 12% to 13% workforce reduction between 2012 and 2015. 

As part of its restructuring efforts, in 2011 Merck sold its stake its consumer health venture, Johnson & Johnson-Merck Consumer Pharmaceuticals (now named McNeil Consumer Pharmaceuticals), to former partner Johnson & Johnson for some $175 million. The sale included rights to Pepcid, Mylanta, Mylicon, and other branded products sold in the US and Canada (as well as partial ownership of a troubled manufacturing plant in Pennsylvania); Merck continues to market Pepcid overseas. The deal allows Merck to focus on its fully owned consumer product lines (former Schering-Plough products including Afrin, Claritin, Coppertone, Dr. Scholl's, and MiraLAX, among others); the company also plans to look for opportunities to license or convert additional OTC products.

Mergers and Acquisitions

Merck is increasing its M&A activities to further protect itself against competitive market challenges. Expansion measures taken in 2010 include the acquisition of private biotech firm SmartCells, a developer of glucose-responsive insulin products, in a deal worth up to $500 million, and the purchase of the biologics division of UK firm Avecia for $190 million. In 2011 Merck purchased Inspire Pharmaceuticals for some $430 million. The deal added ophthalmology products including AzaSite, a treatment for bacterial conjunctivitis (eye infections), as well as a specialized sales force and an ocular R&D pipeline.

Merck completed one of the largest pharmaceutical mergers in recent history in 2009 when it paid $41 billion to acquire the operations of top drugmaker Schering-Plough. The purchase expanded Merck's pharma, biotech, consumer health, and animal health operations and created a number of new growth opportunities for the organization. – less

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