Merck-Medco Essay

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Merck-Medco: Vertical Integration in the Pharmaceutical Industry Case Analysis Merck-Medco: Vertical Integration in the Pharmaceutical Industry Case Analysis Introduction: There are three viable options for Merck to consider in deciding whether or not to undertake vertical integration. The first option is, in fact, to acquire an organization with the competency of pharmacy management to add to Merck's value chain. This option is attractive due to shortcutting the process of developing new processes. Merck's primary business being drug manufacturing, the acquisition of a Pharmacy Benefit Manager (“PBM”) will likely be the quickest and most effective way for Merck to acquire pharmacy management competencies. However, Merck will face the daunting issue of integration of the PBM’s capabilities with its own competencies. The second viable option for Merck, rather than acquiring or buying the pharmaceutical benefit management competencies of Medco, would be for them to develop their own individual competencies, expand their research and development, and establish closer relationships to their customers. This, however, takes quite some time to properly implement. Thus, due to the highly competitive and time-to-market issues of new drugs, this option is not advisable for Merck. Development of new drugs and getting them to market is critical for remaining competitive in the pharmaceutical industry. The final option I see for Merck in this situation is to create new capabilities through a spinout organization. As it stands, Merck is unprepared (with its current competencies) to rapidly move into the pharmacy management arena. This is primarily due to the fact that most of their resources are devoted to drug research and development. Spinout organizations, however, should primarily be used when a separate organization is required because the

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