INFS 6330 Group Project - Kai Background & Merck

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Chemistry

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Feb 20, 2024

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INFS 6330-01V-Spring 2024 Group 4 Group Project Topic and Organizational Structure Topic: Augmented Connected Workforce Firm Analyzed: Merck Technology Utilized: PTC’s Vuforia Augmented Reality Work Instructions and Vuforia Expert Capture Group 4 Members  Cynthia Alvarez:  Kai Feng: Background to  Benito Guajardo  Kimberly Ramos  Jan Vela Title: Value creation through implementation of Augmented Reality within a large cap pharmaceutical company Table of Content  Introduction to innovation and technology: Kimberly Ramos  Background to pharmaceutical industry and Merck: Kai Feng  PTC’s Vuforia Augmented Reality Technology: Kimberly Ramos  Partnership and catalyst for value creation: Jan Vela  Porter 5 Analysis o Competition within industry: Kai Feng o Threat of new entrants: Cynthia Alvarez o Power of Suppliers: Benito Guajardo o Power of Customers: Benito Guajardo o Threat of Substitutes: Cynthia Alvarez  Summary: Team  Reference: Team Background to Pharmaceutical Industry and Merck & Co.:

As the general US population age, more people will rely on medications for both short-term and long-term health issues. The growth of the pharmaceutical industry is projected at a compounded annual growth rate (CAGR) of 7.4% annually in the near to medium term with a base figure of $550 billion in revenue as of 2021. While this industry includes many small, mid- sized, and large-cap companies, the top five mega pharmaceutical companies stand out and collectively hold a significant 63.4% market share. The layperson is often curious and amused by astronomical figures, but this perspective changes when they understand the substantial investment needed to achieve such impressive results. According to data from publicly traded companies in the United States in 2018, an astonishing 24% of total revenue is projected to be invested in research and development (R&D), encompassing the amortization of this expenditure due to the extensive development period. In contrast, the cost of goods sold was estimated at 25% of the topline figure with operating expense (inclusive of training) and operating profit sitting at just 21.5% and 23.2%, respectively of the overall pie. Due to the significant expenses associated with research and development in the pharmaceutical industry, it is crucial to conduct a comprehensive examination of the process. Drug discovery involves four major stages that must be successfully advanced in sequential order to allow for the subsequent stages to occur in the development process. The initial stage involves pre-discovery bench research that entails the understanding of the underlying pathophysiology of the disease in consideration along with the identification of a potential target for a therapeutic agent. Once satisfactory results have been achieved, the subsequent stage entails the exploration of drug discovery and the identification of chemical entities with the potential to interact with the desired target. This process entails either conducting empirical screening of millions of potential molecules to identify necessary traits or performing synthetic modifications until a "hit" molecule is found that suggests a high likelihood of producing the desired effect. Next, the "hit" molecule is taken to the preclinical stage for testing in a controlled laboratory setting, starting with in-vitro cellular or tissue-level experiments. The next step is to test this molecule on laboratory animals in order to thoroughly examine its early toxicology and pharmacological effects, as well as its properties at an organism level. After clearing this stage, the enterprise needs to submit an Investigational New Drug application (IND) to the FDA with all available data and plans for human clinical trials. The clinical trial stage is then initiated in sequential stages of Phase I, Phase II, and Phase III studies. Phase I involves a small group of healthy volunteers, where the objective is to ensure safety parameters are met. Phase II will then enroll a larger number of patients who are sick with the disease being studied. Once the Phase II study meets its clinical and safety objectives, the final "pivotal" phase, Phase III, will begin. This phase will enroll thousands of patients over an extended period to definitively establish its clinical application. If both the Phase II and Phase III studies meet the clinical outcomes and do not have any unacceptable adverse effects, the molecule can be submitted to the FDA for regulatory approval through a New Drug Application (NDA). On average, it takes about 10–15 years for a prospective molecule to go from pre-discovery to being submitted for NDA. This process costs around $3.1-3.4 billion in R&D expenses (2023 USD, adjusted for inflation). Furthermore, we cannot dismiss the inherent risk involved in drug development, with only 10-14% or 1:10 - 1:7 of all preclinical molecules estimated to successfully reach commercialization. Because of these significant risks and the substantial financial investment required for research and development, it is crucial for a pharmaceutical company to not only recover the R&D cost but also generate a substantial return on investment for its shareholders while ensuring economic sustainability in this intrinsically high-risk, high-reward setting. The key to success lies in swiftly reaching the market to ensure maximum preservation of patent exclusivity, which starts from the time of IND approval. On average, from the time of FDA approval, most medication maintains about 5–7 years of monopolistic power.

Merck & Co. is the world's fourth-largest pharmaceutical company. It has around 69,000 employees globally and earned approximately $59.3 billion in revenue according to the 2022 full-year 10K report. In this same time frame, the R&D expense was estimated to be $9.9 billion. The company’s main focus area of innovation includes the arena of oncology, vaccines, infectious diseases, and cardio-metabolic disorders. Within these spheres of pharmaceutical research and development, several blockbuster medications lead the way for its top-line figure. This includes the chemo-immunotherapy Keytruda, which accounted for over 40% of its annual revenue for 2022. Gardasil and MMR II provided additional support, contributing to 15% of 2022 revenue, with Lagevrio, an oral COVID-19 medication, accounting for 9.5% of total sales. Considering the reliance of Merck on these highly successful projects and the restricted timeframe of patent exclusivity, the company must secure its future sustainability in the competitive environment by continuously developing a diverse range of pipeline molecules to obtain patent exclusivity or extend the lifespan of existing ones. A strong talent acquisition and human capital development system is essential for the success of this R&D endeavor. It is crucial to ensure that shop floor employees can effectively manage the numerous projects and processes they undertake. In the past, training and development in the pharmaceutical industry mainly consisted of reviewing Standard Operating Procedures (SOP), attending annual didactics, and completing competencies. However, more engaging approaches involved collaborating with Subject-Matter Experts (SME) through interactive processes. In a fast-paced field like R&D and pharmaceutical manufacturing, the above-mentioned antiquated process in human capital development is often perceived as perfunctory or even ineffective by both trainees and external observers. Recognizing the need for a paradigm shift to secure its market position and drive project innovation for long-term sustainability, Merck has embraced the challenge by integrating digital transformation technologies, such as Augmented Reality (AR), into its toolkit. ------------------------------------------------------------------------------------------------------------------------------------------ -innovation to product -improve the efficiency of shop-floor employee AR GATE program with MERCK: Based on first proof of value of the technology.  They reach steady state with the technology  Front line operation-plant employee champion use through high value-high volume cases that was largely based on GMP compliance, short learning curve. o Key wins: Knowledge-tech transfer through rapid dissemination of tacit information from SME, driving right first time, reduction of human error, contextual information for front line worker when needed, increased speed to competency that has positive effect on trainer and trainee of R&D and manufacture workers, increased productivity o AR GATE is not only cost effective to acquire skills for onboard but also cost effective to sustain a skil l (AR-guided self-help training via 3D live environment), which is more likely to be received and accepted by trainer/trainee than compare to traditional books-paper way of going through a manual. -Sustaining of asceptic technique training 2 times annually. o Improving right first time during pharmeutical production that results in reduced COGS since there is estimated 75% reduction in consumables and material discarded during

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process, along with 80% reduction in human performance related notification. Given get right first time, there is increase throughput of production of the final product or intermediary molecules. There is less time wasted on Quality Notification investigation.  For example if there is quality notification that result in inpurity, the whole batch could be wasted. o Productivity – SME involved in training process through AR allowed more time redicted to productive use than training, with estimated 2 weeks saved per training cycle of new manufacturing emloyees. Allow capturing of knowledge from SME that retires. Zippia. "25+ Incredible U.S. Pharmaceutical Statistics [2023]: Facts, Data, Trends And More" Zippia.com. Jun. 19, 2023, https://www.zippia.com/advice/us-pharmaceutical-statistics/ https://www.fiercepharma.com/pharma/top-20-pharma-companies-2022-revenue https://healthpolicy.usc.edu/evidence-base/how-did-the-public-u-s-drugmakers-sales-expenses-and- profits-change-over-time/ https://jamanetwork.com/journals/jama/article-abstract/2768970 https://www.nature.com/articles/nrd.2016.136 https://www.proclinical.com/blogs/2023-7/the-top-10-pharmaceutical-companies-in-the-world-2023 https://jobs.merck.com/us/en GAO Profits, Research and Development Spending, and Merger and Acquisition Deals https://www.ejpps.online/post/vol28-1-workforce-training-for-pharmaceutical-manufacturing-operators