Merck (in 2009): Open for Innovation?

Alicia Horbaczewski, Frank T. Rothaermel

The pharmaceutical industry faces the threat of patent expirations, diminishing new drug breakthroughs, adverse regulatory laws, increasing competition, and a harsh economic climate. Merck & Company felt these mounting pressures and had become increasingly reliant on blockbuster drugs. With its new drug pipeline running dry, Merck accepted that the biotech industry is too complicated for it to navigate alone. As it stood, it was producing only 1% of the biomedical research in the world. Thousands of new ideas were emerging around the world, both inside and outside of the company. An open innovation strategy would allow the company to source new ideas externally and at a faster rate. This came with many risks including the reduced competitive advantage of protected intellectual property. While Merck had been moving toward an open innovation strategy, its history of internal research and development had created a culture resilient to working externally. Should Merck pursue an open innovation strategy? If so, how?

Learning Objective

The case begins shortly after Dr. Mervyn Turner's appointment as Merck's first Chief Strategy Officer. Merck faces a difficult external environment-a poor economy, increased generic competition, and an adverse regulatory climate-just as its own patents are expiring and its internal drug pipeline is drying up. Turner, a 23-year Merck veteran, believes strongly that the company needs to innovate in order to stay competitive. Accordingly, he challenges the company's strategic leadership to embrace a new "open" model of research and development (R&D) that reaches out to bring the best innovations from universities, research institutes, and other companies into Merck, instead of relying solely on the company's internal R&D activities. Merck's recent $41 billion "reverse merger" with Schering-Plough represents a significant step toward a more open-innovation paradigm. Yet the company's ability to maximize the value of this investment depends on the willingness of Merck's famed scientists to embrace ideas and technologies that were "not invented here."

Details

Pub Date: Jan 6, 2012

Discipline: Organizational Behavior

Subjects: Corporate strategy, Entrepreneurship, Health care, Innovation, Mergers & acquisitions, Technology

Source: McGraw-Hill Education

Product #: MH0009-PDF-ENG

Teaching note: Available

Industry: Manufacturing

Geography: United States

Length: 27 page(s)