Merck has integrated its risk management system into the ongoing business planning processes. Potential negative developments, for example changes in customer demand or new political framework conditions, are described and evaluated in the risk reports, so that we can take countermeasures in good time if any events should lead to deviations from the business plan. Risks in connection with investment decisions are lowered by the use of detailed guidelines.
As of December 31, 2008, the Merck Group operated 54 production sites in 25 different countries. We have taken appropriate measures to minimize the risk of a supply bottleneck for important products. Total revenues and the operating result of the Merck Group depend on a large number of pharmaceutical and chemical products for various industries. This diversification itself minimizes risk, since the markets differ in their structure and economic cycles. This is also an expression of the Merck strategy to remain an integrated pharmaceutical and chemical company.
We try to prepare for the potential risks of a changing market environment, for example the current recession, further health care cost containment measures or new products from competitors, by continually observing market developments and acting with appropriate foresight.
With respect to the Liquid Crystals and Performance & Life Science Chemicals divisions, Merck is addressing the momentary decline in demand due to the economic situation by temporarily adjusting production capacities.
The special risks of pharmaceutical development are constantly monitored by a portfolio and project management system introduced in the Merck Group. In the course of portfolio management, research areas and all R&D pipeline projects are regularly evaluated and, if necessary, refocused. As a research-based pharmaceutical company, there is the risk for Merck of development projects having to be discontinued – in some cases only after substantial investment – at a late phase of clinical development. Decisions – such as those relating to the transition to the next clinical phase – are taken responsibly in order to minimize risk. Nevertheless, the danger still exists that undesirable side effects of a pharmaceutical product is not discovered until after approval or registration, which could result in restrictions or a product recall.