strategic-management

prescriptions. Because the price of prescription drugs is climbing, many states are reducing
their Medicaid drug benefits.
Due to the high cost of prescription drugs in the United States, many consumers are
finding alternative ways of getting the prescription filled. The common trend is filling and
importing medicines from Canada at a lower price. The Canadian government is taking a
proactive position by trying to block or to reduce the exportation of the drugs to the United
States. In a recent press release, the Canadian health minister stated the intention to introduce
legislation under Canada’s Food and Drug Act that would prohibit companies from exporting
bulk prescription drugs to the United States.
Competitors
Pharmaceutical companies are marked by rapid advances in scientific knowledge by
producing more effective medicines. Profitability is determined mainly by the ability to
discover new drugs while keeping their cost low. The industry is dominated by large
manufacturers that manufacture drugs, have large research operations, and have
resources for conducting clinical testing along with more than adequate funds for
marketing and distribution.
As indicated in Exhibit 6, Merck competes directly with large drug manufacturers
that offer similar products, especially if a patent has expired. The company also competes
indirectly with smaller drug manufacturers because many may be more innovative or are
able to produce generic brands at a lower cost.
GlaxoSmithKline is a global health-care group engaged in the creation and discovery,
development, manufacture, and marketing of pharmaceutical products, including vaccines,
OTC medicines, and health-related consumer products. The company operates in two segments:
Pharmaceuticals, which produce pharmaceutical products for therapeutic areas; and
Consumer Health Care, which focuses on OTC medicines, oral care, and nutritional health
care. The company had reportedly been in talks early in 2009 to be acquired by Johnson &
Johnson and Novartis AG.
Pfizer discovers, develops, produces, and markets prescription medicines for humans
and animals. The company has two segments: Pharmaceutical, which develops and
produces products that treat cardiovascular and metabolic diseases, central nervous system
disorders, arthritis and pain, infectious and respiratory diseases, urogenital conditions, cancer,
eye disease, endocrine disorders and allergies; and Animal Health, which discovers,
develops, and sells products for the prevention and treatment of diseases in livestock and
companion animals. Pfizer also operates several other businesses such as the manufacture of
empty soft-gelatin capsules, contract manufacturing, and bulk pharmaceutical chemicals.
Their popular drugs are Lipitor (commonly used to reduce high cholesterol), Celebrex (for
treating arthritis), and Viagra (prescribed to treat erectile dysfunction). The company
recently acquired Wyeth pharmaceuticals, giving Pfizer the ability to complete in nine
diverse heath-care businesses.
EXHIBIT 6 Merck versus Competitors (April 2009)
CASE 26 • MERCK & COMPANY INC. — 2009 259
Merck GlaxoSmithKline Pfizer Sanofi-Aventis Drug Industry
Market Cap $48.84B 77.47B 90.32B 70.84B 78.72M
Employees 54,100 99,003 81,800 98,213 335
Revenue 23.41B 35.73B 48.30B N/A 253.49M
Gross Margin 76.03% 77.14% 85.08% 74.54% 73.14%
Oper Margins 25.53% 36.57% 34.77% N/A 5.89%
Net Income 5.93B 6.75B 8.02B N/A N/A
EPS 2.785 2.58 1.201 N/A N/A
Source: Based on information at http://finance.yahoo.com.