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. We can, therefore, take countermeasures in good time, if any events should lead to deviations from the business plan. Risks in connection with investment decisions are minimized by the use of detailed guidelines.
As of December 31, 2009, the Merck Group operated 54 production sites in 26 different countries and took appropriate measures to minimize the risk of supply disruptions 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 industry sectors. This diversification helps lower risk since the markets differ in terms of their structure and economic cycles. This is also an expression of the Merck strategy to remain an integrated pharmaceutical and chemical company.
By continually monitoring market developments in the divisions and acting with appropriate foresight, we try to prepare for the potential risks of a changing market environment, such as from the global economic crisis continuing, from further health care cost containment measures or from new products from competitors. Merck is addressing changes in demand due to the economic situation, particularly with respect to the Chemicals business sector, 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, we regularly evaluate and, if necessary, refocus research areas and all R&D pipeline projects. As a research-based pharmaceutical company, Merck bears the risk of development projects having to be discontinued – in some cases after substantial investment – at a late phase of clinical development. Decisions – such as those relating to the transition to the next clinical phase – are made responsibly in order to minimize risk. Nevertheless, the danger still exists that undesirable side effects of a pharmaceutical product go undetected until after approval or registration, which could result in a restriction of approval or withdrawal from the market.
In many pharmaceutical markets, medications are subject to changing, increasingly restrictive requirements in terms of pricing, reimbursement and approval. These can negatively impact the profitability of our products and jeopardize the success of market launches and new approvals.
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