Merck & Co - $MRK.US

What’s Merck & Co Business Model?

Merck & Co., Inc. is a global health care company that delivers health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products, which it markets directly and through its joint ventures. The Company has operations in pharmaceutical, animal health, and consumer care.

What Merck & Co is doing in more details?

A global drugmaker, Merck makes medicines for an array of maladies ranging from hypertension to cancer.

The pharmaceutical giant’s top products include cancer drug Keytruda, diabetes drugs Januvia and Janumet, HPV vaccine Gardasil, a pediatric combination vaccines ProQuad, M-M-R II, Varivax.

In addition, Merck makes childhood and adult vaccines for such diseases as measles, mumps, rubella and varicella and pneumonia, as well as veterinary pharmaceuticals through Merck Animal Health.

In addition, the company provides analytics and clinical services to the health care sector. The US market accounts for about 45% of sales.

Where Merck & Co is Operating?

Merck operates through four segments: Pharmaceutical, Animal Health, Healthcare Services, and Alliances.

The Pharmaceutical segment, which accounts for nearly 90% of revenue, includes human pharmaceuticals and vaccines.

It has a broad portfolio of marketed and development-stage pharmaceuticals in areas including oncology, vaccines, diabetes, other pharmaceuticals, hospital acute care, diversified brands, cardiovascular, women’s health, virology, immunology, and neuroscience.

Best-selling drugs in the Pharmaceutical segment include cancer drug Keytruda, bringing in about $11.1 billion in annual sales, and type 2 diabetes drugs Januvia and Janumet, which together bring in about $5.5 billion in revenue.

The company’s HPV vaccine Gardasil brings in more than $3.7 billion in sales, while a pediatric combination vaccine, to help prevent measles, mumps, rubella and chickenpox ProQuad, M-M-R II, Varivax generate about $2.3 billion total sales and a medication for the reversal of two types of neuromuscular blocking agents used during surgery Bridion accounts for $1.1 billion of total sales.

The Animal Health segment, accounting for nearly 10% of sales, develops, manufactures, and markets animal health products (including vaccines) for both companion and livestock animals.

Key products include Nuflor antibiotics, Bovilis/Vista vaccine lines, Bravecto for fleas, and ear ointments Otomax and Mometamax.

The Healthcare Services segment provides services and solutions that focus on engagement, health analytics and clinical services to improve the value of care delivered to patients.

The Alliances segment was largely composed of results from a partnership with AstraZeneca, which ended in 2018, related to sales of Nexium and Prilosec.

Where is the geographical reach of Merck & Co?

Headquartered in Kenilworth, New Jersey, Merck markets its products in over 140 countries, with its largest market ? the US ? accounting for about 45% of revenue. The EMEA (Europe, Middle East, and Africa) region accounts for about 25% of sales, while Japan accounts for about 10% of sales.

China, Asia/Pacific region (minus Japan and China) and Latin America each accounts for about 5%. Others generate the remaining sales.

The company operates principal research facilities in the US, China, and Switzerland.

Merck’s US manufacturing operations are headquartered in New Jersey. It has another nine production facilities throughout the US and in Puerto Rico.

It also owns or has interests in manufacturing sites and other properties in Japan, Singapore, South Africa, and other countries in Asia, the Americas, and Western Europe.

What is Merck & Co’s Sales and Marketing Strategy?

Merck markets its products through direct sales forces and international distributors. Customers include drug wholesalers, retailers, physicians, hospitals, pharmacies, government agencies, insurers, and health care providers.

Animal health products are sold to veterinarians, animal producers, and distributors. For instance, Johnson & Johnson markets anti-inflammatory drug Simponi in the US, while Merck has marketing rights in Europe, Russia, and Turkey.

The company recorded advertising and promotion expenses $2.1 billion in 2019, $2.1 billion in 2018 and $2.2 billion in 2017, respectively.

What is Merck & Co Financial Performance?

Worldwide sales were $46.8 billion in 2019, an increase of 11% compared with 2018, including a 2% unfavorable effect from foreign exchange. The sales increase was driven primarily by Merck’s growth pillars of oncology, human health vaccines, certain hospital acute care products, and animal health.

Net income attributable to Merck & Co., Inc. was $9.8 billion in 2019 and $6.2 billion in 2018. The rise on their net income was primarily due to the increase on their revenue and having a lower taxes on income.

The company ended 2019 with $9.9 billion in cash, up $2.0 billion from 2018.

Operating activities contributed $13.4 billion, while investing activities contributed $2.6 billion (from security and other investment sale proceeds), and financing activities used $8.9 billion via treasury stock purchases and dividends.

What is Merck & Co Future Strategy?

Merck’s performance during 2019 demonstrates execution in both commercial and research operations driven by a focus on key growth drivers and innovative pipeline investment reinforcing the company’s science-led strategy.

In 2019, Merck enhanced its portfolio and pipeline with external innovation, increased investment in new capital projects focused primarily on expanding manufacturing capacity across Merck’s key businesses, and returned capital to shareholders.

In early 2019, Merck approved a new global restructuring program (Restructuring Program) as part of a worldwide initiative focused on further optimizing the company’s manufacturing and supply network, as well as reducing its global real estate footprint.

This program is a continuation of the company’s plant rationalization, builds on prior restructuring programs and does not include any actions associated with the planned spin-off of NewCo.

As the company continues to evaluate its global footprint and overall operating model, it has subsequently identified additional actions under the Restructuring Program, and could identify further actions over time.

What are Merck & Co’s Mergers and Acquisitions?

In early 2020, through a subsidiary, the company acquired ArQule for $20 per share in cash for an approximate total equity value of $2.7 billion.

The company also acquired worldwide rights to VECOXAN (diclazuril), an oral suspension for the prevention of coccidiosis in calves and lambs, from Elanco Animal Health.

The company also acquired US rights to SENTINEL FLAVOR TABS and SENTINEL SPECTRUM Chews in the Companion Animal category from Virbac. Merck Animal Health made a cash payment of approximately $400 million in acquiring the SENTINEL branded products in the US.

The company acquired privately held Peloton, a clinical-stage biopharmaceutical company focused on the development of novel small molecule therapeutic candidates targeting hypoxia-inducible factor-2a (HIF-2a) for the treatment of patients with cancer and other non-oncology diseases.

Through a subsidiary, the company acquired all outstanding shares of Peloton in exchange for an upfront payment of $1.05 billion in cash.

In addition, Peloton shareholders will be eligible to receive a further $1.15 billion contingent upon successful achievement of future regulatory and sales milestones for certain candidates.

In late 2020, the company acquired a leading data and analytics company that monitors cattle body temperature and movement in order to detect illness early, the Quantified Ag.

To strengthen the company’s leadership position in agriculture, in advancing fish health and welfare, in late 2019, the company acquired a leader in fish farming and wild fish conservation monitoring equipment and real-time video monitoring technology to advance fish health and welfare, from Pentair, a leading global water treatment company, Vaki.

In 2019 Merck agreed to acquire Tilos Therapeutics, a biotech firm developing treatments for cancer, fibrosis, and autoimmune diseases, in a deal worth up to $773 million.

Merck acquired privately held firm Antelliq for $2.4 billion in 2019. Antelliq specializes in digital devices for animal identification and tracking, which can help predict and treat disease. Its technology is used on livestock, pets, and fish and aquaculture.

Merck also purchased biotech Immune Design for some $300 million in 2019, gaining access to two in-vivo technology platforms used in the development of cancer vaccines.

What is Merck & Co’s Background?

Merck traces its roots to the formation of Schering-Plough and the original Merck entity in the 1800s. (The two companies merged in 2009.)

Schering-Plough dates back to 1851, when Berlin chemist Ernst Schering began to sell chemicals to apothecary shops. The US subsidiary was established in 1928.

The original Merck was started in 1887 when German chemist Theodore Weicker came to the US to set up a branch of German firm E. Merck AG (which was founded in 1668 and later became Merck KGaA). Both companies severed ties with their German parents during WWII.

What is Merck & Co’s History?

Merck traces its roots to the formation of Schering-Plough in 1851 and the founding of the original Merck entity in 1887. (The two companies merged in 2009.)

Schering-Plough dates back to 1851, when Berlin chemist Ernst Schering began to sell chemicals to apothecary shops.

By 1880 Schering’s business (which eventually became Bayer Schering Pharma) was exporting pharmaceuticals to the US, where a subsidiary (the predecessor to Schering-Plough) was established in 1928.

At the outbreak of WWII, the US government seized the US Schering subsidiary, severing links with its German parent. The company went on to develop such new drugs as Chlor-Trimeton, one of the first antihistamines, and the cold medicine Coricidin.

The US government sold Schering in 1952 to Merrill Lynch, which took it public. Schering bought White Labs (which made Coppertone sunscreen) in 1957. In the 1960s the company introduced Garamycin (antibiotic, 1964), Tinactin (antifungal, 1965), and Afrin (decongestant, 1967).

Schering’s 1971 merger with Memphis-based Plough expanded the product line to include such cosmetics and consumer items as Coppertone and Di-Gel. Plough’s founder, Abe Plough, had borrowed $125 from his father to found the company in 1908.

Abe remained chairman at Schering-Plough until 1976. Schering-Plough introduced many products after the merger, including Lotrimin AF (antifungal, 1975), antibiotic Netromycin (1980), and Drixoral (a cold remedy made nonprescription in 1982).

The company was one of the first drug giants to make significant investments in biotechnology: It bought DNAX Research Institute of Palo Alto, California, in 1982.

Acquisitions in the late 1970s and 1980s included Scholl (foot care, 1979), Key Pharmaceuticals (cardiovascular drugs, 1986), and Cooper Companies (eye care, 1988).

In 1993 Schering-Plough began marketing its non-sedating antihistamine, Claritin, in the US. (Claritin became an OTC drug in 2002.) The next year it gained FDA approval to market the first colored disposable contact lenses, only to sell its contact lens business later in the year.

In 1996 Schering-Plough bought Canji to strengthen its gene therapy research program. It strengthened its veterinary medicine segment in 1997 when it bought Mallinckrodt’s animal health operations.

The firm bought the marketing rights to Centocor’s treatment for Crohn’s disease in 1998. In 1999 the FDA approved the company’s Temodar, a chemotherapy treatment for brain tumors, and it bought the US rights to Pfizer’s Bain de Soleil sun care product line.

In 2000 Schering-Plough formed its first collaboration with Merck. In 2002 the company paid a $500 million fine to the FDA over manufacturing concerns.

As Schering-Plough’s revenues started to decline in 2003, the company brought in several executives from Pharmacia, including CEO Fred Hassan (who retired following the 2009 merger with Plough) to help streamline its operations and expand its R&D programs and product offerings.

The firm gave itself a major boost by acquiring Akzo Nobel’s Organon unit in 2007 growing in the areas of women’s health care, neurology, vaccines, animal health (Intervet), and third-party biologics manufacturing (through Diosynth).

The original Merck was started in 1887 when German chemist Theodore Weicker came to the US to set up a branch of German firm E. Merck AG (which was founded in 1668 and later became Merck KGaA).

George Merck (grandson of the German company’s founder) came in 1889 and formed a partnership with Weicker, and eventually bought out Weicker’s shares.

At first the firm imported and sold drugs and chemicals from Germany, but in 1903 it began manufacturing its own products.

During WWI, Merck gave the US government the 80% of the US Merck unit’s stock owned by the family in Germany (George kept his shares). After the war, the stock was sold to the public.

The firm acquired Powers-Weightman-Rosengarten of Philadelphia (a producer of antimalarial quinine) in 1927. Merck opened its first research lab in 1933; Merck scientists there developed the first steroid, cortisone, in 1944.

Five Merck scientists received Nobel Prizes in the 1940s and 1950s. In 1953 Merck bought drugmaker Sharp & Dohme of Philadelphia, which brought with it a strong sales force.

The 1958 introduction of Diuril (antihypertensive) and several other drugs (including the first measles vaccine) in the early 1960s was followed by a dry spell.

In the 1970s an accelerated R&D organization created new products including Clinoril (antiarthritic), Flexeril (muscle relaxant), and Timoptic (for glaucoma). Merck introduced 10 major new drugs in the 1980s, including Mevacor (high cholesterol) and Vasotec (high blood pressure).

In 1990 the company bought the nonprescription drug segment of ICI Americas; products from the purchase were contributed to a Consumer Pharmaceuticals joint venture with Johnson & Johnson. Merck bought pharmacy benefits manager Medco Containment Services in 1993.

New drug launches in 1995 and 1996 included Cozaar (for reducing hypertension) and Pepcid AC (antacid). Also in 1996 Merck expanded its pharmacy benefit management operations with the purchase of Systemed.

In 1997 Merck and RhÔne-Poulenc (now part of Sanofi-Aventis) merged their animal health units to form Merial. Merck also sold its insecticide and fungicide business to Novartis that year.

In 1998 DuPont bought out Merck’s 50% stake in a drug-marketing joint venture formed by the two firms in 1991. In 1999 the FDA approved Merck’s preservative-free hepatitis B vaccine, Recombivax HB.

In 2001 Merck acquired biotech firm Rosetta Inpharmatics. The company spun off its highly successful Medco Health Solutions drug distribution subsidiary in 2003.

In 2004 Merck pulled its blockbuster pain medication Vioxx off the market after studies linked the drug to increased risks of strokes and heart attacks.

(Merck settled thousands of class-action and personal-injury lawsuits related to Vioxx in 2007 for $4.85 billion.) The Vioxx safety scandal, along with the pending loss of patent protection on some of its biggest sellers like Zocor (which began facing competition in 2006), sent the company into recovery mode.

Merck announced restructuring plans to make the company’s operations leaner and more cost-effective in 2005 under new CEO Richard (Dick) Clark, a longtime Merck executive. Between 2005 and 2008 the company eliminated more than 10,000 jobs and closed a handful of manufacturing plants.

From 2006 to 2009 Merck worked aggressively to expand its biotech operations through the acquisition of companies including GlycoFi (biologic drug molecules), Abmaxis (monoclonal antibodies), Sirna Therapeutics (RNA interference or RNAi), and NovaCardia (cardiology drugs), as well as the follow-on (generic) biologic assets of Insmed.

New drug launches included HIV drug Isentress and diabetes therapy Janumet in 2007 and blockbuster HPV vaccine Gardasil, the world’s first anti-cancer vaccine, which was approved by the FDA in 2006.

In 2008 Merck sold off the assets of its Rosetta Inpharmatics subsidiary to Covance (gene expression laboratory assets) and Microsoft (expression analysis software assets). It also sold another research lab to PPD and contracted out certain lab functions to the buyer.

Merck launched a new product, Emend, for chemotherapy side-effects that year. New drug launches in 2009 included Saphris, a treatment for schizophrenia and bipolar disorder, and Simponi, the next-generation version of top-selling drug Remicade.

Cholesterol drug Vytorin — a combination of Schering-Plough’s Zetia and Merck’s Zocor — began facing controversy in 2008 when study results were released questioning the drug’s effectiveness compared to Merck’s older medication Zocor.

Controversy over Vytorin, along with some other pipeline setbacks (including the FDA’s rejection of a Merck/Schering-Plough combo asthma drug and Merck’s Cordaptive cholesterol candidate) led both predecessors Merck and Schering-Plough to announce layoffs and restructuring measures in 2008.

Each company reduced its workforce by around 10% that year, with their respective US sales teams bearing the brunt of the cuts.

The companies’ troubles with Vytorin came to a head in 2009 when they agreed to pay about $42 million to settle class-action lawsuits filed by consumers and health plans over Vytorin’s efficacy.

Later that year, Merck and Schering-Plough decided to merge, taking the logical step of marriage to strengthen their defenses against future troubles (especially in light of increasing competitive challenges in the market), as well as to create cost savings opportunities and expanded avenues for revenue growth.

The $41 billion transaction was conducted through a reverse-merger transaction in which the legacy Schering-Plough entity acquired the legacy Merck entity and took on the Merck name.

Following the merger, Merck began simplifying its global branding under the Merck and MSD names, gradually phasing out the Schering-Plough moniker. The purchase expanded Merck’s offerings in areas including inflammation, allergy, and cancer treatment, as well as biotech drugs.

The acquisition also greatly expanded Merck’s operations in the animal health and consumer health arenas.

However, to gain Schering-Plough’s animal health unit, Intervet (later renamed Merck Animal Health), Merck had to sell its stake in veterinary joint venture Merial to partner Sanofi-Aventis for about $4 billion later that year to avoid anti-trust issues.

(Merck and Sanofi-Aventis later explored options to strike a fresh veterinary medicine joint venture by combining Merial with Intervet; however, after a year of planning, the two companies called off the deal in 2011 due to concerns over further anti-trust issues.)

The company experienced a sharp gain in profits in 2009 (reporting net income of $12.9 billion) due to gains on the sale of the Merial stake and on recognized equity from assets previously owned jointly with Schering-Plough.

When the Merck/Schering-Plough merger closed, the existing Merck CEO, Dick Clark, took the helm at the new Merck. Once the dust from the merger settled, however, Clark retired from the CEO post at the end of 2010, while remaining as chairman. President Kenneth Frazier stepped into the CEO role.

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