Merck Seeks a Cure

By Edward Cone Print this article Print

The developer of drug blockbusters such as painkiller Vioxx was used to setting the pace in pharmaceutical development. Then its product pipeline dried up, sales slowed and profits shrank. To get through what could be a long dry spell, Merck brought in a

When Chris Scalet arrived at Merck in March 2003, he knew he had a lot to learn. His immediate predecessors at the pharmaceutical giant had backgrounds in scientific computing and intimate knowledge of the information technology needs of the drug maker's all-important research and development arm—the organization that turned out blockbuster drugs such as anti-cholesterol treatment Zocor and painkiller Vioxx.

Unlike former chief information officer Hassan Dayem or acting CIO Irene Qualters, Scalet knew almost nothing about drug development. He describes the education he got in his first few months as "like drinking from a fire hose."

But coming from International Paper, where he had been CIO since 1997, he also thought he had a few things to teach Merck about operational efficiency. That was becoming increasingly important for Merck. Last year, sales were up just 5% over 2002, compared with the 16% growth Merck had enjoyed in its drug business in 2000. Back then, earnings had been climbing 17% per year since the mid-1990s. Now, profit margins were falling. In fact, Merck's net income of $6.8 billion on sales of $22.5 billion in 2003 was down 4.5% from $7.1 billion on sales of $21.4 billion in 2002.

But what's really making Merck investors nervous is the scarcity of new products, combined with looming patent expirations on drugs such as Zocor, Merck's top seller. The anti-cholesterol drug brought in sales of $5 billion last year, or nearly a quarter of Merck's total revenue. Once generic alternatives become available in 2006, Merck expects them to take away more than $4 billion within a year. Another potential problem is a report that says Vioxx may carry a higher risk of heart problems than competing products. A pharmaceutical company, on average, needs 10 years of work and nearly $1 billion to bring a significant new drug to market, according to a study by Tufts University. A new drug is considered significant if it rings up at least $1 billion in annual sales.

For Merck and many other big companies, particularly in pharmaceuticals, it's often hard to focus on pinching pennies when you record billions in profits. But Merck's sheer size means that if it operated more efficiently, it could regain the profitability of the past. Toward that end, Merck is putting more effort into "operational excellence," including the efficiencies information technology can bring.

That's where Scalet comes in.

"I think they were looking for someone who had a different background, from an industry that didn't have the margins we enjoy here and had done some things more aggressively in the area of operational excellence," Scalet says. At International Paper, "we had to in order to survive," he says, because paper and packaging is more of a commodity industry.

It isn't that Merck is profligate. Indeed, when Merck's earnings were growing 17% per year, it was lauded in academia for the way it managed its information systems. Even now, the benchmarking firm Alinean considers Merck a "frugal leader" in the pharmaceutical industry, spending conservatively on information technology yet enjoying the highest rate of return on systems spending of any large drug company.

So what's at stake? A lot.

Once the biggest and richest drug maker, Merck is now the fifth largest in market capitalization, worth $105 billion to its shareholders. Pfizer, now number one, is valued at $270 billion.

If Merck wants to sustain high profits, while retaining the ability to invest in drug research, it can only do so by operating with greater efficiency. If, for instance, the company can run its marketing, drug development, distribution and other operations 5% more efficiently, as much as $635 million could make its way to the bottom line. Get that to 15%, and you're beginning to get somewhere.

Scalet knows Merck is in a pinch, needing to maintain profitability for its shareholders during lean times.

"There are things we could afford to do five or 10 years ago that we can't necessarily afford to do today," Scalet says.

But if there's anything he knows, it's how to operate efficiently in a pinch. When you're coming from International Paper, Merck's after-tax margin of 30 cents on the dollar is mammoth. Scalet's former employer earned just 1.2 cents on each dollar of sales. At International Paper, for instance, Scalet declined to outsource the hosting of its Web operations, figuring his information systems crew could host and operate Web services for less.

Doubling Paper's net income, though, would mean finding only another $302 million. For Merck, that's just 4.4% of its net income.

Bigger Than Big

Given the need for billion-dollar improvements, Scalet faces these key questions: What does efficiency really mean, when profits are already huge? When is a big overhaul big enough? And just what kind of changes can he make, by applying information technology, that will produce a meaningful impact on Merck's profitability?

After all, Merck is already known for efficiency, at least among drug manufacturers. Charles Popper, who was Merck's CIO for most of the 1990s, says some of the credit for that efficiency should go to the project-approval committee and portfolio management processes he set up to help business and technology managers work together to balance the costs, risks and benefits of systems investment.

But Scalet is reevaluating the Popper-era approach to governance because he is not convinced it has been consistently effective. "Yes, there was a process in place that was being used, and used effectively in most cases," he says. While Scalet agrees Merck has been "somewhat frugal," he sees the returns from its systems investments as uneven.

Scalet must perform a tough balancing act. He must wring efficiencies from his operation without starving crucial initiatives. "The question is, how do I drive operational excellence, but not to a point where we're impeding new product development, impeding the scientist's ability to get stuff done?" he says.

Among his priorities:

Accelerating clinical testing. Merck has long recognized the potential of information systems to accelerate drug development but hasn't always achieved the results it sought. Industry executives point to years of largely fruitless effort Merck invested in a proprietary product development system that was supposed to speed the collection of clinical testing data. But more recent efforts, including a system called the Clinical Trials System, are showing potential. If Merck could bring another product with Zocor-like sales to market 30 days sooner, it would reap more than $400 million in additional revenue.

Standardizing and consolidating systems. At International Paper, Scalet standardized on SAP and folded in the order-management and financial systems of companies the paper maker acquired. Scalet sees "inherent opportunities" for consolidation at Merck because multiple versions of software have been deployed at different locations. Consolidation can result in big savings. JohnsonDiversey, a $3 billion-a-year cleaning-services company, for instance, has consolidated 40 enterprise systems to 15. That has saved $60 million a year and reduced its spending on information technology as a percentage of annual sales from 5% to 3.2%.

Employing more off-the-shelf software. Merck has a strong tradition of custom-developing software, and Scalet says some of that continues to make sense for bleeding-edge areas like research and development. But Merck probably can't afford to do as much of it anymore, and the company must learn to use packaged software more intelligently.

Scalet won't put any numbers on how much such moves could save Merck. But whatever he does needs to have impact beyond just savings on how the company manages its information technology. The company spends about $1 billion a year on deploying and operating its information systems.

Dozens of former employees and industry experts support the idea that Merck already has rigorous processes in place for approving projects and controlling costs. But Merck veterans also say that rigor sometimes devolves into bureaucratic rigor mortis.

To cut through hidebound ways, Merck isn't alone in looking outside its industry for an efficient operator of information systems. Pfizer took the same tack two years ago, recruiting Chuck Williams to be its chief technology officer. He came from paper-and-pulp-products maker Georgia Pacific.

Both Williams and Scalet "came out of an industry that was used to squeezing out efficiencies and getting the most out of an I.T. investment,'' says Jim Sabogal, director of the pharmaceutical industry business unit at SAP. "Paper companies are used to very low, single-digit profitability, whereas pharmaceutical companies panicked when they got anything less than double-digit profitability.''

"The paper industry understood operational excellence very well," Scalet says. "As the pharmaceutical industry evolves over the next 5 to 10 years, it will certainly do better."

The Frugal Leader

The company Scalet entered last year thought it knew how to run an efficient technology shop. And by pharmaceutical industry standards, it did.

Alinean estimates that in 2002, the year before Scalet was hired, Merck's information technology spending equated to 2.6% of revenues, compared with an average of 4.4% for other big pharmaceutical firms.

That may be a distortion, however, since more than half of Merck's revenues that year came not from drug sales but from its high-volume, low-margin pharmacy benefits management business, Medco.

Last year Merck spun off Medco, and Alinean revised its estimate of Merck's information technology spending to 4.8% of revenues, compared with 5.1% for its major competitors.

Still, while spending a little less than average, Merck gets more for its money, according to a metric Alinean calls return on information technology (ROIT).

Here, Merck's high ranking is driven largely by profitability. By standard accounting, for instance, last year Merck generated far more profit, $6.8 billion, than its far larger rival Pfizer, which netted $3.9 billion on revenue of $45.2 billion.

To calculate ROIT, Alinean uses a profitability metric called Economic Value Added (EVA), which rewards conservation of capital and investment in research and development. Merck's EVA of $5.9 billion last year compares with $599 million for Pfizer.

In effect, companies with high EVA ratings are achieving more profit with less use of capital—doing more with less—which implies superior use of information, which implies superior information systems. And if you accept that string of assumptions, EVA divided by information technology spending yields ROIT. Merck's ROIT of 538% compares with 28% for Pfizer and 295% for Eli Lilly, the next best performer in Alinean's analysis of Merck's competition.

"I would still classify Merck as a frugal leader, one of the best in our database," says Tom Pisello, a former Gartner Group analyst who is Alinean's CEO and founder. "They're not merely making decisions based on features and functions and technical specifications." What seems to make the difference, Pisello says, is "how far down in the organization they've driven the knowledge of wanting to do financial analysis and the capability of doing it. This is not just some executive edict."

Of course, Alinean's metrics look only at the past. "One of the challenges they face is revenue sustainability and revenue growth," Pisello says. "This is an issue for any frugal leader: You're being penny-wise today, but are you investing enough in the future?"

The Pipeline Problem

When Scalet goes to work every day, Merck is judged not by the output of its computer systems but by the productivity of its drug development.

The problem is that even if Merck's scientists found an all-in-one cure for impotence, baldness and bad eyesight today, years would pass while the drug made its way through toxicity testing, three phases of clinical trials, and approval by the U.S. Food and Drug Administration. Merck is constantly seeking ways of accelerating this process, which is one of the areas in which better information systems can help. There are also parts of the process that can't be rushed, such as the scientific study of how a drug affects a test subject over time.

Last year, Merck canceled four drug candidates. Two of those, a diabetes drug and a depression treatment, made it all the way into large-scale human testing and had been thought to have potential for sales of $1 billion or more per year. But during clinical trials, the diabetes drug was shown to cause cancer in laboratory mice, and the depression treatment proved no more effective than a placebo.

Since 2000, Merck has introduced just six new drugs. Other companies faced with similar dry spells have reacted by merging with or acquiring another big pharmaceutical firm. Cases in point: Last year, Pfizer spent $56 billion to acquire Pharmacia; in 2000, Glaxo Wellcome and SmithKline Beecham entered into a $75 billion merger and created GlaxoSmithKline.

Merck CEO Raymond Gilmartin steadfastly refuses all pressure to execute his own mega-merger, arguing it would be a distraction. Merck will research its way out of this slump, as it has done before, he says. He hedges this bet only by stepping up the pace at which Merck is making smaller acquisitions, forging partnerships and cutting licensing deals as a way of fortifying its product mix.

Merck has a long-standing reputation for capitalizing on its research: It pioneered the manufacture of penicillin in the 1940s. More recently, Merck earned international acclaim for giving away its patented cure for river blindness, a devastating water-borne disease afflicting millions in the world's poorest countries. Under long-time chief executive Roy Vagelos in the '80s and early '90s, Merck was praised for achieving high returns, even though it would spend large sums on fighting certain diseases when it could not recoup costs.

But Vagelos, who retired in 1994, was also responsible for the $6.6 billion purchase of Medco in 1993. In retrospect, it looks like a mistake—a defensive overreaction to what turned out to be the illusory threat of the Clinton health-care plan. Other big pharma firms bought similar companies, which operate as middlemen between drug makers and the insurers and corporate benefit plans that distribute prescription drugs to end users.

But while other pharmaceutical companies sold these businesses after the Clinton plan died, Merck held onto Medco for a decade before spinning it off last year. Ultimately, Medco was a distraction—a high-volume, low-margin business prone to raising thorny regulatory issues about whether Medco was unfairly promoting Merck products. To make matters worse, the Internal Revenue Service is now alleging that Merck owes as much as $2 billion in back taxes related to the merger.

Gilmartin joined Merck in 1994, having been recruited from medical equipment maker Becton, Dickinson and Co. Some observers questioned whether someone from outside the drug industry was the right man for the job, since that was another time when the drug pipeline seemed to have run dry.

But that drought didn't last. Merck introduced drugs such as Singulair for asthma and hay fever and Fosamax for osteoporosis. Earnings growth from the time Gilmartin took the job through 2000 averaged 17%, making him look like a hero—even if the development of those hit drugs began long before he arrived.

The Project of Governing

Helping achieve the outsized earnings growth was Popper, CIO from 1991 to 1999. Toward the end of his tenure, he created a process for approving the deployment of new information systems that was loosely based on how Merck chose which drugs to develop.

"We had a strong focus on managing the cost and benefits, and on the governance of projects," Popper says.

Project approval committees made up of a mix of business unit and information technology managers would analyze project and technology choices according to risk, cost and potential reward. Committee members would estimate and weigh the cost and potential savings or other benefits in dollars, plus or minus 25%.

The committee would also assign metrics with which to judge success or failure to each project it approved. "If we got the result that we planned, we probably planned it correctly and the system made sense," Popper says.

For example, one project for Merck manufacturing was judged by a reduction in the number of "bad batches" produced by Merck's pharmaceutical manufacturing plants, he says. As was often true, that result took a combination of systems, such as better software for scheduling maintenance tasks, and other process improvements, such as better training for manufacturing and maintenance personnel, he adds.

At a corporate level, individual products would be tracked in a portfolio, meaning that high-risk, high-return projects, like some of the more adventurous applications being created for R&D, would be balanced against low-risk, low-reward projects, such as system maintenance. Like a stock portfolio manager, Popper wanted to tune this project mix to be neither too aggressive nor too timid. He adopted techniques for graphing the results so he could show other managers exactly where he was placing his bets.

Popper was succeeded in 1999 by Hassan Dayem, who served until leaving for a CIO job at Amgen in May 2002. Popper had hired Dayem from Los Alamos National Laboratory in 1997 and put him in charge of the information technology group assigned to R&D. (Dayem declined to be interviewed for this article.) After Dayem left, his successor as head of Research Information Services, the former Cray Computer executive Irene Qualters, was put in a caretaker role as acting CIO for most of a year while Merck searched for a permanent replacement.

Prof. William V. Rapp of the New Jersey Institute of Technology, who researched Merck for an academic case study on the excellence of its technology management during Popper's tenure, is convinced that the organization's strengths—balancing high- and low-risk projects—have remained constant.

"It's working well, and these kinds of rules and routines don't change," says Rapp, who published his study in his book Information Technology Strategies: How Leading Firms Use IT to Gain an Advantage (Oxford University Press, 2001). One of Popper's key accomplishments was securing the involvement of business managers on the project committees, which helped keep systems efforts aligned with business goals, Rapp says.

That was then. That is not now.

Fifteen months on the job, Scalet says he simply doesn't see the strengths Popper talks about reflected in the process he has inherited. For one thing, the management of Merck technology projects needs "worldwide visibility," he says. "Traditionally, projects were rationalized division by division,'' Scalet says. "You could wind up with projects that do the same thing in different parts of the world. We need a better way to find out that duplicate projects are going on and bring those together."

At issue is money being spent on duplicative efforts that can, over time, be unified. Yet Scalet is concerned that the project approval committees have been making decisions with so much independence that the result has been systems fragmentation.

For example, Merck uses J.D. Edwards financial software worldwide, but multiple versions and customizations have been implemented. Merck turned to J.D. Edwards for a supply chain system fielded in 2003, but that module was unrelated to the other J.D. Edwards components.

"We took data out of an existing system, and once we were finished with it created a plan that had to be integrated with another existing system—neither of which was J.D. Edwards," says Mark Lind, a consultant from Inrange Consulting who worked on the implementation. "The decision was based on pure functionality," he says, meaning the supply chain managers picked what was most beneficial to them "without regard to anything anybody else in the company was doing." This is one area where Scalet sees "inherent opportunities for consolidation."

Former CIO Popper defends the strategy of not trying to make everything revolve around one ERP system as one way Merck saved money. "When everyone else in the industry was wrapped up in eight-figure SAP-type projects, we stayed with a best-of-breed concept," Popper says. Merck chose the best products it could find in each category for financial management, manufacturing and other functions, stitching them together with message-oriented middleware. "We probably pulled that off with a $10 million to $20 million price tag," he says, and that's a fraction of what he would have expected to spend tailoring a single ERP system to meet Merck's needs.

John Blanchard, an analyst with manufacturing and logistics consultancy ARC Advisory Group, says Popper may have a point in that most pharmaceutical companies that adopted ERP systems wholesale in the 1990s have yet to see a return on investment. At that time, a best-of-breed approach "was probably a smart economic move," Blanchard says. But the state of the art has improved since then, he says, "and today I would probably make a different decision."

A consultant who provided an independent review of more than 40 information technology projects under way during Popper's tenure says about 70% proved to be on track, while the other 30% "went in the wrong direction or nowhere."

One problem: Business executives were so much in control that they would make product selection and project direction decisions "regardless of the I.T. infrastructure," says the New Jersey-based systems consultant. "I don't think they had the right guidance. You need someone there to play referee."

Without that, the committees sometimes chose whatever they thought was right for their business unit, even if it was inconsistent with Merck's overall systems architecture.

Former employees say the project committees can bring out the worst in Merck's bureaucratic culture, leading to "analysis paralysis" or continually expanding project requirements rather than focused effort. Popper admits he doesn't really know how well the practices he introduced functioned after his departure. "The mechanism only works well if you have the right people implementing it," he says.

In the future, Scalet wants to make sure projects aren't just approved in isolation to serve the needs of an individual business unit. They also need to be reconciled with an overall systems strategy, he says.

Seeking Strategic Impact

What Scalet could really use about now is a software package that would make exciting new patented and FDA-approved medicines materialize from thin air.

While that's not realistic, one way Merck has attacked the issue of research productivity was the $630 million acquisition of Kirkland, Wash.-based Rosetta Inpharmatics in 2001.

Rosetta specializes in the use of "gene chip," or "DNA microarray," technology. Much as microprocessors pack computer circuitry into a small area, gene chips are miniature genetic laboratories that can read the genetic programming of a tissue sample in search of clues to the progression of a disease or probable reactions to a drug. Each chip contains tens of thousands of genetic sensors. Tests are repeated hundreds or thousands of times, so gigabytes of data can result from a single experiment. Rosetta devised software that helps make it manageable.

Certainly, the Rosetta acquisition was a recognition of the potential for computer power to accelerate Merck's core business, but Merck's information technology organization had little to do with it. Indeed, Merck doesn't even call it "information technology."

Instead, such scientific computing is called "informatics." And Rosetta, now part of Merck Research Labs, is pushing the bounds of computing, medicine, genetics and biology, seeking to create new drug formulas. This is "bioinformatics."

What Scalet's information technology organization is expected to provide is the more basic computer and network platform for the scientist's work, along with applications to track the administrative aspects of drug development. One area Scalet recognizes as having "huge opportunities" for information systems impact is speeding up clinical trials.

A drug entering clinical trials is the result of decades of experimentation—basic science on the formation of chemicals and their effect on the body, leading to the formulation of a promising compound, initial toxicology studies and animal testing. A few candidate drugs eventually win approval to be tested for safety on a small number of human subjects, in what's known as Phase I testing. In Phase II, the testing focus is sharpened to determine the drug's medical effectiveness. Most drug candidates fail before they ever get to Phase III, the large-scale clinical trials aimed at producing medical-efficacy and safety data that will convince the FDA to approve the medicine for sale.

Every day that can be shaved off the clinical trials process potentially brings that drug closer to FDA approval. If Merck could develop a drug with Zocor-like sales and get it to market 30 days sooner, it would gain more than $400 million in additional revenue.

Significant time savings are within reach. A return-on-investment study Merck conducted from October 2002 to May 2003 with DataLabs, a vendor of data collection software for clinical trials, showed a 33-day savings in the time needed to design the data collection forms prior to the start of a trial and, more importantly, a 30-day savings in the time required to conclude the trial and analyze the data. The system also cut information systems costs associated with a trial by about 22%—largely manpower savings, including reduced effort by programmers and database developers. By catching more errors at the time of data entry, the system also reduced the clerical effort devoted to catching errors prior to producing a report on the trial's results.

Rich Gleeson, vice president of enterprise solutions at DataLabs, says the project showed him how rigorously Merck manages its systems by "methodically measuring the impact—was there a benefit to the software?" To his delight, Merck allowed DataLabs to publish the results, and licensed the software.

Merck continues to evaluate similar products from other vendors and may yet choose a different one as its corporate standard. Still, the DataLabs project shows the potential.

Merck has built a hugely profitable business on the back of blockbuster drugs such as painkiller Vioxx. But the pipeline of new products is drying up. Sales growth has slowed to 5% a year and profits are down by 4.5%. To help get through what could be a long dry spell, the company brought in a cio, chris scalet, from the tight-fisted paper industry to help streamline operations and bolster drug research. But scalet faces a tough balancing act: wring efficiencies from i.T. Operations without impeding research initiatives.

When Chris Scalet Arrived at Merck in March 2003, he knew he had a lot to learn. His immediate predecessors at the pharmaceutical giant had backgrounds in scientific computing and intimate knowledge of the information technology needs of the drug maker's all-important research and development arm—the organization that turned out blockbuster drugs such as anti-cholesterol treatment Zocor and painkiller Vioxx.

"If you can consistently eke out 30 days from the process, that's worth a lot," says Dr. Louis C. Kirby, president of Pivotal Research, a contract research organization that often conducts clinical trials for Merck. However, the time gain only matters if the drug is ready for FDA review 30 days sooner.

Often, even after the data is available for review, the study sponsors will spend the next 60 to 90 days mulling it over before settling on a design for the next phase of testing. So the trick is not to be caught flat-footed, to have the next phase planned before the last is completed, Kirby says. "You have to be ready to roll right from Phase II to Phase III. If you don't, that time savings is going to be squandered."

Merck says it has in fact sped up the development and testing process, pointing to another promising drug candidate, a diabetes treatment known as MK-0431. Merck Research Labs president Peter Kim told stockholders at the company's annual meeting in April that Merck cut nearly in half a key period in the development of that drug. The industry average for the time to get from the first laboratory toxicity tests of a drug candidate through the beginning of Phase III is 4.12 years, he noted. Through a combination of scientific and procedural improvements, Merck reduced that time to 2.25 years for MK-0431, Kim says.

Kim did not try to quantify how much information technology contributed to that gain. Scalet says he believes systems improvements played a role, "but by no means was it I.T. alone; that was I.T. plus a whole lot of hard work." Much of the credit should go to the research organization for how it restructured itself and its decision-making processes, he suggests.

Still, Merck saw the potential to use information technology to compress the clinical trials process a long time ago, and has had supporting information systems in place for 30 years or more, although it hasn't always been a smooth process.

In the 1990s, Merck struggled to erect a modernized clinical data system known as CRISP (Clinical and Regulatory Information Strategic Program), a project that current and former information systems workers came to regard as a $100 million fiasco.

"This project ran into a lot of problems," says one former manager who was involved near the beginning of the CRISP project. He asked that his name not be used.

Previously, when Merck conducted worldwide clinical trials, its overseas offices would collect the results on paper, which would then be sent to the U.S. for data entry. Merck succeeded in moving from a centralized mainframe database to a distributed database architecture, allowing remote offices to record the results of a trial on a local database, then replicate that data to the home office in New Jersey. By 1995, CRISP was deployed on more than 25 Hewlett-Packard 9000 servers located in more than a dozen countries, and Merck was talking about doubling the deployment over the next two to three years.

The problems started when Merck decided to create a graphical user interface to CRISP, allowing clinical researchers to do their own data entry rather than having Merck personnel transcribe the results from paper forms.

Merck significantly underestimated the challenge, according to a former Merck executive who was involved in the early phases. Merck's scientists were impressed by the ease of use of the Apple Macintosh computers they were using at the time. They thought creating a graphical data collection tool ought to be an easy task for Merck's programmers.

The task of creating this software led the programmers into unfamiliar territory. Not only did they have to learn new programming techniques, but they were continually frustrated in their effort to build a single system that would work for all trials. The real problem was that the data to be collected varies significantly with the nature of the medicine being tested and the malady it addresses. That meant both the user interface and the database structure had to be different for each trial. For example, aside from a patient's vital signs, the data to be collected for a depression drug study might have almost nothing in common with that for a diabetes study.

As a result, developers found themselves continually customizing the system for each new trial. What they really needed was a way of generating new applications automatically. That's essentially what DataLabs has pulled off, incorporating the Microsoft Visio diagramming tool and a series of templates for visually depicting the design and schedule of a trial, together with the data to be captured. The software then creates a browser-based user interface and the corresponding database structure.

Merck salvaged the best elements of CRISP for what was renamed the Clinical Trials System (CTS), which remains in use. And while Merck is still pursuing the kind of efficiencies CRISP was supposed to produce, today it can take advantage of a new generation of technologies.

CRISP was "too far ahead of its time," says Judy Sromovsky, former director of clinical trial system standards at Merck. "In 2004, when I'm talking to [study] sites, all they want to do is electronic data," says Sromovsky, now study director at The Medicines Co., a smaller New Jersey pharmaceutical firm. "They were more comfortable with paper back then." A large part of the change comes from user familiarity of the Web, which replaces the client/server architecture on which CRISP was based.

Meanwhile, the Clinical Data Interchange Standards Consortium, in which Merck is an active participant, has created an eXtensible Markup Language specification that makes it possible for Merck to create one standard interface to CTS that will work with compliant electronic data collection software from DataLabs and other vendors.

In retrospect, the CRISP project "was too ambitious and involved a lot of process change and new technology," Popper says. It also predates the project methodology he instituted, he says. "When we put the new oversight in place, things started to get better."

But even with those processes in place, one former Merck developer who was laid off in January says he ran into something a lot like CRISP 's runaway requirements on other projects. The development of one particular database had been under way for years, but the scientists kept piling on new requirements that kept it from being finished. Instead of continuing the endless committee process, the developers finally had to put a freeze on new feature requests so they could complete a working system.

Unifying ERP

Scalet has his work cut out for him.

These days, he's focusing more energy on Merck's ERP strategy, which is based on a patchwork of proprietary applications and packaged software from multiple vendors, including J.D. Edwards. With J.D. Edwards now owned by PeopleSoft, Scalet appears to want to select a single planning system and stick with it, say individuals close to Scalet.

And while Scalet is not necessarily saying he will junk Merck's current mix of enterprise applications in favor of a single ERP system, he talks about promoting "more standardized solution sets."

Merck must learn when it's appropriate to "buy packages, install the packages the way they come delivered to us, and alter our business processes if necessary," he says. "But there are still other areas, as we get close to our customers, close to basic research, where we will do custom development. That's … where there's the greatest opportunity for strategic advantage."

Scalet addressed similar issues at International Paper, according to one of his information systems colleagues there. Because the company grew through acquisitions, "we had systems that were doing essentially the same things in many different businesses, but doing those same things very differently," the colleague says.

Under Scalet, those situations didn't last long, he says. For example, after the 1999 merger with Union Camp, International Paper stopped implementation of an order management system and took a $3 million write-off.

At Merck, the issue may be that the individual project committees are making isolated decisions because they can't see the big picture, says the former colleague. "Typically, a CIO has a much broader perspective on the overall landscape. The folks in the forest, they can only see trees. I would suggest Chris is pretty good at seeing the forest."

Merck Base Case

Company: Merck & Co., Inc.

Headquarters: 1 Merck Drive, Whitehouse Station, NJ 08889

Phone: (908) 423-1000

Business: Prescription drug maker

Chief Information Officer: Chris Scalet

Financials in 2003: $22.5 billion in revenue; $6.8 billion in net income; net profit margin of 30%.

Challenge: Preserve a tradition of frugal but productive information technology spending, while seeking ways to improve Merck's overall operational excellence and speed the discovery and testing of new drugs.

Baseline Goals:

  • Realize 10% or more annual revenue growth, up from 5% in 2003.

  • Reduce by 30 days or more the time needed to complete a clinical trial and analyze results.

  • Improve cash flow by $300 million per year, from better control of inventory.

  • Cut capital spending to $2 billion per year, from $2.6 billion.

    This article was originally published on 2004-06-08
    Senior Writer and author of the Know It All blog

    Ed Cone has worked as a contributing editor at Wired, a staff writer at Forbes, a senior writer for Ziff Davis with Baseline and Interactive Week, and as a freelancer based in Paris and then North Carolina for a wide variety of magazines and papers including the International Herald Tribune, Texas Monthly, and Playboy. He writes an opinion column in his hometown paper, the Greensboro News & Record, and publishes the semi-popular EdCone.com weblog. He lives in North Carolina with his wife, Lisa, two kids, and a dog.
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