Merck integrates 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 identified, described and evaluated within the scope of the internal risk management process. We can, therefore, take countermeasures in a timely manner if any events lead to deviations from the business plan. Risks in connection with investment decisions are minimized by the use of detailed guidelines.
Total revenues and the economic success of the Merck Group depend on a large number of pharmaceutical and chemical products for various industries. This diversification lowers 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, chemical and life science company.
Political and regulatory risks
As a global company, Merck faces political and regulatory changes in many countries and markets. In 2012, increasingly restrictive requirements were imposed in the pharmaceutical environment in terms of drug pricing, reimbursement and approval, a trend that can be seen in many countries. These requirements can negatively impact the profitability of our products and jeopardize the success of market launches and new approvals. Close communication with health and regulatory agencies serves as a preventive measure to avert risks. The destabilization of political systems, possible erection of trade barriers and monetary policy changes can lead to declines in sales in certain countries and regions. Diversification in terms of products, industries and regions serves to mitigate potential negative effects.
Research and development risks
For Merck, innovation is a major element of the Group strategy. Research and development projects can experience delays, expected budgets can be exceeded or targets remain unmet. Research and development are of special importance to the pharmaceutical business. Therefore, research and development projects are constantly monitored by a portfolio management system. In the course of portfolio management, we regularly evaluate and, if necessary, refocus research areas and all R&D pipeline projects. Sometimes development projects are discontinued after high levels of investment at a late phase of clinical development. Decisions – such as those relating to the transition to the next clinical phase – are taken with a view to minimizing risk. Furthermore, there is a risk that the regulatory authorities either do not grant or delay approval, which can have an impact on earnings. Additionally, there is the danger that undesirable side effects of a pharmaceutical product could remain undetected until after approval or registration, which could result in a restriction of approval or withdrawal from the market.
Product quality and availability risks
Merck is exposed to product liability risks. These include complying with the highest quality standards in the production of pharmaceuticals (Good Manufacturing Practices) which is monitored by the regulatory authorities. Quality controls along the entire value chain minimize these risks. This starts with the qualification of our suppliers. Quality controls also include comprehensive quality requirements for raw materials, purchased semifinished products and plants, as well as long-term strategic alliances in the case of supply- and price-critical precursor products.
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