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Q&A: Dr. Stefan Oschmann, Executive Board Member and CEO Pharma of Merck

An interview with Dr. Stefan Oschmann, Executive Board Member and CEO Pharma of Merck*, on industry challenges and investing in the future.

Considering the tight budgets in many healthcare systems, is the golden age of the pharma industry behind us?

Developing new medicines and bringing them to the market has certainly become more difficult in recent years. The industry is undergoing a transformation, a process in which emerging markets also play a key role. Pharma companies are required to develop smarter solutions than in previous years, which, in the end, will also benefit patients.

That sounds promising. Developed markets, however, where these changes are most prominent, continue to contribute the majority of sales in the pharma industry. In your view, what are currently the greatest challenges in these markets?

One significant challenge presented by the health system policy is increasingly driven by higher cost pressure in aging societies. Another is the productivity dilemma in R&D that the pharma industry faces. Despite rising budgets for research and development in recent years, approval of new molecular entities has been in decline. And as patents for important products are expiring, global healthcare systems face many challenges, but also opportunities. Pharma companies need to monitor these changes closely and be prepared for the impact they may have.

Turning to the emerging markets, over the next three years they are estimated to contribute 70 percent towards the industry’s growth. Can you outline the challenges and key strategic issues you see in these markets?

Merck wants to expand its business with our current product portfolio. Part of this strategy is our focus on emerging markets, where many patient needs are still unserved. Take China, for example, there are more people with diabetes in China than anywhere else in the world—type 2 diabetes alone affects more than 100 million people. In other developing countries, the number of patients with diabetes, cardiovascular disease and thyroid disorders is also increasing. We can provide high-quality medicines with proven effectiveness to treat these diseases and are working on making these available to more people, including those in remote regions.

What exactly does that mean?

New customer groups with different needs are emerging. The challenge lies in providing medicines to people worldwide. Today, we produce 25 billion pills a year. By 2020, the demand will have doubled to 50 billion. To be able to meet this market demand, we need to increase the output of our existing production plants. In addition, we have to invest in new locations to be closer to our customers, for instance those in China.

A growing number of pharma companies are increasing their efforts in Africa, seeking to secure their share of the next growth market. In your view, what additional challenges are present in this market?

Merck has over the last few years been steadily increasing our commitment to Africa. The market still provides small revenues, and profit margins are higher in other developing markets, but our investments in Africa are future-oriented. Africa is not a new territory for us. Through our corporate responsibility activities—like the fight against the parasite disease Schistosomiasis and counterfeit medications—Merck has extensive experience in Africa.

We work closely with governments, health authorities and research institutes to provide more people with the medical treatment they require. Our Capacity Building programs and our cooperation with African governments and institutions demand a great level of flexibility.

What is the reason behind this demand for flexibility?

Africa is diverse. Every country is different in terms of size, demographics and culture. This means we need a different business approach for every country. There is no single business model that will ensure our success in Africa. At Merck, we have always been good at adapting our expertise for specific local environments. We leave the “one size fits all” thinking to others.

Going back to mature markets, where M&A activity has dominated the recent pharma industry headlines. What is your view on these developments, and how can global pharma companies reach an optimal balance between organic and inorganic growth?

Mergers and acquisitions are always an option, but they have to make sense strategically and culturally. Right now the market has really heated up. At Merck we are watching this trend closely. As part of our transformation program—Fit for 2018—we are focusing on profitable growth.

We have not ruled out acquisitions, but will not pay astronomical prices. We also want to in-license products to strengthen our pipeline. And we continue to focus on growing organically. Our ability to do so has been proven in the last quarters. We are particularly well positioned in the growth markets of Asia and Latin America, providing a good foundation for future growth.

*Merck KGaA, Darmstadt, Germany. In the United States and Canada the subsidiaries of Merck KGaA, Darmstadt, Germany operate under the umbrella brand EMD