As Merck prepares for its 350th anniversary due next year, we’re ‘Fit for 2018’ says Dr Stefan Oschmann, Chairman of the Executive Board and CEO, Merck. While the Sigma-Aldrich acquisition gave the company a global leadership position in the lifesciences sector, Anand Nambiar, MD, Merck India tells Viveka Roychowdhury that the focus for the India market in the next 18 months is to reach out directly to consumers post the recent integration of the consumer health and biopharma segments. Edited excerpts …
Since 2011, Merck has been through a transformation as part of the Fit for 2018 initiative. What are the next stages in this evolution?
Dr Stefan Oschmann: Historically, Merck is the oldest chemical and pharmaceutical company in the world. We were founded in 1668, and next year we will celebrate our 350th anniversary which is something really unusual. Moreover, the founding family still has majority stakes in the company, with 250 family members, about 150 of whom are partners, as part of the company globally. This gives it a very long-term perspective. That’s fascinating.
We are also a bold and vibrant science and technology company and our branding is an expression of that. Our business portfolio has changed dramatically over the last 10 years plus. We have moved about Euro 40 billion in assets, in either buying or selling businesses. So we’re a very active company.
Right now, we have three main pillars of our business: healthcare, lifesciences, performance materials; which are very different but also have a lot in common. What they share is that they are very much science and innovation based, so we are very happy with this transformation. We are not going to be complacent about the future and we’re working on quite a few things that will define our future but so far we are very happy with the transformation process.
When I joined the company in 2011, there were serious doubts about the long term vitality of our healthcare business but today, nobody has doubts any more. We understand that this is a business with very good momentum, with the in line products as well as a very promising pipeline. And we’ve had some major regulatory successes recently.
Our lifesciences business is now a global powerhouse. With the recent integration of Sigma-Aldrich, we have become a leader in this business. In our performance materials business, when we had acquired AZ Electronic Materials in 2014, now has very comprehensive offerings for our customers in the display and semi conductor industry. So we’re very happy with where we are.
There was a lot of cost optimising as part of the early 2018 plan. Is that all over now? And should we expect more such transformative moves from Merck?
Oschmann: We colleagues always think that, “once we get this done, then maybe we can relax a little bit.” But in my experience of 30 years, once you get something done, you will be onto something new. So yes, while we are happy with where we are right now, it (the transformation) will never stop.
Merck’s FY/Q4 2016 results show that net sales were €15 billion, and EBITDA pre was €4.49 billion. What is India’s fitment and role in the ‘Fit for 2018’ growth and transformation programme? What is the country’s value proposition to a global biopharma major like Merck? How much do Emerging Markets (EM) contribute to the revenue mix right now?
Oschmann: We stopped referring to them as EM. India is not emerging. India is there. India is a high growth market for us, both for healthcare as well as for lifesciences. We refer to these markets as Growth Markets and they have very different profiles so we don’t call them Emerging Markets any more. If you look at the regional distribution (our our revenues), compared to many other companies, we have a very global profile, where at a corporate level, the No 1 revenue contributor is Asia Pacific. The three major regions we have (Asia Pacific, the Americas and EU) contribute about one third each. So we’re quite globally balanced.
We used to have a dedicated EM market strategy for a while like many other companies. We now believe that markets like India have reached a level of maturity which does not need this logic anymore. India is an important, big market for us and we have a dedicated team in India which is developing strategies for India within the business and above. The Indian market has very little in common with the Chinese or Brazilian markets. So we don’t think this EM logic makes a lot of sense any more these days.
When Merck India was set up in 1967, it was the company’s first Asian subsidiary. What is the employee strength today? Where does India rank within the APAC region, in terms of revenues?
We have around 4000 employees in India across all businesses. Merck doesn’t publish figures per country or per business. Of the 10 largest countries in Merck’s growth markets segment, India ranks fifth. A large proportion of our APAC business is in the display field, under performance materials. So as we do not have display manufacturing facilities in India, as yet, India doesn’t rank so high in that business. India has a very prominent position in the region in the healthcare and lifesciences businesses. In the lifesciences segment, given the prominence of the Indian pharma biotech and vaccines business, it’s actually fairly large. So is the size of our healthcare business from India, given the progress of the Indian healthcare sector.
What’s the plan for 2017-2018 for India in terms of product launches, etc? What will be the strategies to grow the business further in India? You have two partnerships with Lupin and Dr Reddy Laboratories (DRL), how are these proceeding?
Oschmann: The DRL partnership for oncology biosimilars proceeded nicely but will end soon as we are in the process of selling our biosimilars business to Fresenius Kabi, because we are now confident of our research based pipeline.
Nambiar: The Lupin partnership goes beyond India. The deal was to take some of Lupin’s products and market it in some of the other emerging markets. There are a couple of countries where this is at pilot stage.
Oschmann: The main current drivers of our portfolio in India is our biotech portfolio (Erbitux for colorectal cancer; Rebif in multiple sclerosis, and Gonal-f and other products in fertility.) We also have our cardio metabolic portfolio (with products such as Concor, Euthyrox, etc.) We have a fairly large portfolio of small molecule products that we sometimes refer to as our Classics. We also have the consumer health space. All that is growing well.
The bio processes business is a significant driver in the lifesciences portfolio, where we are supporting India based customers in biologics and vaccine manufacturing. Our research solutions portfolio is also very prominent in India. Given the huge efforts in quality control in the food and other industries, we have our applied solutions business which is yet another driver.
Are you looking at more alliances with Indian companies, to grow the revenue stream from India?
Nambiar: We’re always looking for opportunities but none to speak of at the moment.
Oschmann: I’ve been working in India for many years. I have a lot for respect for India and the large corporations and what they have achieved. If you look at the success stories of some of them, like Sun Pharma, Zydus Cadila, Lupin, DRL, and so on; its impressive what they’ve achieved. We do cooperate with such companies on the manufacturing side, on product development and many other areas.
My friends tell me that the dream is the India-based research breakthrough. We would be delighted to see that happening because the Indian healthcare system needs to evolve. When we talk about intellectual property (IP) standards, we have good material, in practice we have good enforcement standards in India. So we think as the Indian industry continues to evolve, it will also strengthen the IP protection. The Indian industry has made significant achievements when it comes to process optimisation to ensure that generics manufacturing is at a very low cost base. We also hope that the Indian industry will contribute to enhancing access of the poor to such products. Some people see a dichotomy between research-based and generic companies. I think we depend on each other. Both have an important role to play.
Is India still so price sensitive that we cannot afford innovation?
Oschmann: Access is a big issue in India. People in rural areas do not even have access to very cheap generics which could also be on the essential medicines list. India invests a bit more than one per cent of GDP into healthcare and that is fairly low if we look at other comparable markets. We applaud efforts that show that India is gradually investing more in healthcare, that India is expanding insurance coverage, and that India is making efforts to achieve some of the Sustainable Development Goals.
When it comes to market access of innovative patented products, I think both sides need to be flexible. Industry needs to be open to innovative schemes. Tier pricing is one example. Governments and other stakeholders also need to be flexible on partnering.
At the end of the day, in my experience, partnering approaches have always yielded the best results. Even if one disagrees on a couple of things, if one can agree on doing something that enhances access to products and at the same time rewards innovation, that would be a very good thing. There are so many examples in the world where this is possible.
India completes 70 years of Independence this year. What do you think our policy makers, pharma fraternity needs to do to create an ecosystem to work towards the first Innovated in India molecule?
Oschmann: India has an incredible output of engineers, scientists and the like. And it would be intellectually inconceivable that this will not yield substantial progress. We see that there are so many emerging players in India.
If you allow me to compare India with China for a moment, I see that over the last decade or so, when it comes to R&D based output, China is gaining somehow. My personal view is that this is related to the Chinese government putting more of an emphasis on balancing IP protection and access. So that would be my advice.
Yes, the Indian government has to make sure that they ensure access to the broad population, that they look at industrial policy, employment etc. At the same time, strong IP protection will continue to drive economic development in India. An enhanced effort will be good for India, and I repeat, we would be delighted to see a highly successful and globally competitive Indian research based biopharmaceutical industry. And given the talent base that India has, I think India has no excuse but to deliver on that!
What’s the strategy for the India market?
Nambiar: We have a global strategy, referred to as the 3×3 strategy, which is to have three brands with three per cent (local) market share. We’ve already surpassed this in India where we have four – five brands, which are near to or have surpassed the three per cent mark. In some brands we have 70 per cent market share, some five per cent. That is the global framework that we operate within but we have passed that already.
What is going to be Merck’s next goal, the next level of transformation after reaching the 2018 milestone?
Oschmann: At the global level, we are still digesting the Sigma-Aldrich acquisition. We currently have debt of ¤ 11 billion on the balance sheet so we need to focus on deleveraging. And even if we had a lot of imagination, we need to deliver on that. Within the lifesciences business, the direction is fairly clear. Within the healthcare business, we’re investing heavily in R&D and its about creating results in this area. In performance materials, we have very different businesses. We see a very thriving integrated circuits business, a highly successful pigment business. We are facing some challenges on the display side so we are fighting to maintain global market and technology leadership. So over the next couple of years, its really about these couple of things.
Nambiar: On the India front, we just went through a major transformation, where we integrated our consumer health and our biopharma businesses and primarily a huge portfolio of vitamins, minerals products from biopharma going OTC. So that’s the major transformation that we are going through right now. The integration of the organisation is now complete. Now it’s about taking these products directly to consumers and you”ll start seeing efforts on that front over the next couple of months. So that journey will go thru over the next year/year and a half. We want to get closer to consumers, especially for the vitamin products, so you’ll see more of us reaching out to consumers over the next 18 months.
In our specialty business, our branded generics business is growing above market (rates). The IMS reports also show that from a market share as well as growth standpoint, we’re beating market growth. In our oncology and fertility business, we don’t publish it openly, but again, significantly over market, especially on the fertility franchise. Oncology is a very difficult space. We’re the only single molecule player in the cituximab (Erbitux) area. With Erbitux, for colorectal and head and neck, especially in head and neck, we’re the market leaders. So it’ll be about how to defend ourselves from biosimilars coming into the market over the next 3-4 years.
Dr Oschmann, before joining Merck, you were with US MSD. Do you think that the battle for the ‘Merck’ brand, between the US Merck and the founder company from Germany has been finally settled?
In India, there’s one Merck and that’s us! There are 193 United Nations member states and we are Merck in 191 of them. If you look at the population of the world, we’re living in a world of 11 billion people. Five billion will be Asian, four billion will be African and two billion will be Europe and the Americas. So our rough estimate is that in a world of 11 billion, 10.5 billion will know us as Merck. So we’re very relaxed about this!