Diversification Strategies Case Study

Merck KGaA's 'Focused Diversification Strategy': The Prospects and Perils

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Abstract:
Traditionally, the global pharmaceutical industry has leveraged on its blockbuster model to become one of the most profitable industries in the world. However, since the 1990s, the industry has been witnessing a rapid growth in the generic drug business worldwide and to add to its woes even with increasing investments in R&D, drug innovations have declined. It is opined that the industry is heading towards a consolidation and this prompted Merck KGaA, a German pharmaceutical group, to bid for another German company, Schering AG. However, Schering refused the bid on the grounds that Merck had underestimated its value.

Pedagogical Objectives:

• To understand the reasons and consequences of the changing business model of the global pharmaceutical industry
• To discuss the probable synergies that Merck might accrue by acquiring Schering.

Keywords : Blockbuster model of global pharmaceutical industry; Growth of generic drugs; Consolidation in the global pharmaceutical industry; Decline in drug innovations; Increasing costs of drug innovations; Traditional drug manufacturers going generic; Constraints of new drug research; Diversification Strategies Case Study; Patent expires of blockbuster drugs; Rise of generic drug manufacturers