23 minute read

Merck & Co., Inc. Business Information, Profile, and History

One Merck Drive
P.O. Box 100
White House Station, New Jersey 08889-0100

Company Perspectives:

The mission of Merck is to provide society with superior products and services--innovations and solutions that improve the quality of life and satisfy customer needs&mdashø provide employees with meaningful work and advancement opportunities and investors with a superior rate of return.

History of Merck & Co., Inc.

Merck & Co., Inc. is one of the largest pharmaceutical companies in the world. Among the company's most important prescription drugs are Vioxx, a painkiller used to treat arthritis; Zocor and Mevacor, used to modify cholesterol levels; Cozaar, Prinivil, and Vasotec, hypertension medications; Fosamax, for the treatment and prevention of osteoporosis; Pepcid, an ulcer medication; Primaxin and Noroxin, antibiotics; Crixivan, a protease inhibitor used in the treatment of HIV; Singulair, an asthma treatment; Cosopt, Timoptic, and Trusopt, all used to treat glaucoma; Propecia, a hair loss remedy; and several vaccines, including M-M-R II, chicken pox vaccine Varivax, and hepatitis B vaccine Recombivax HB. Merck also develops, manufactures, and markets pharmaceuticals through a number of joint ventures, including: a partnership with Johnson & Johnson that concentrates on designing and commercializing over-the-counter versions of prescription medications, such as Pepcid AC; a venture with Aventis A.G. focusing on the European vaccine market; and another partnership with Aventis, this one concentrating on animal health and poultry genetics. Nearly half of the company's revenues are generated by Merck-Medco Managed Care, a pharmacy benefit management subsidiary principally involved in selling prescription drugs through managed prescription drug programs. Merck spends more than $2 billion each year on pharmaceutical research and development. About 40 percent of the company's human health product sales are generated outside the United States.

German Origins

Merck's beginnings can be traced back to Friedrich Jacob Merck's 1668 purchase of an apothecary in Darmstadt, Germany, called 'At the Sign of the Angel.' Located next to a castle moat, this store remained in the Merck family for generations.

The pharmacy was transformed by Heinrich Emmanuel Merck into a drug manufactory in 1827. His first products were morphine, codeine, and cocaine. By the time he died in 1855, products made by his company, known as E. Merck AG, were used worldwide. In 1887 E. Merck sent a representative, Theodore Weicker, to the United States to set up a sales office. Weicker (who would go on to own drug powerhouse Bristol-Myers Squibb) was joined by George Merck, the 24-year-old grandson of Heinrich Emmanuel Merck in 1891. In 1899, the younger Merck and Weicker acquired a 150-acre plant site in Rahway, New Jersey, and started production in 1903. Weicker left the firm the following year.

The manufacture of drugs and chemicals at this site began in 1903. This same location housed the corporate headquarters of Merck & Co. and four of its divisions, as well as research laboratories and chemical production facilities, into the 1990s. Once known as 'Merck Woods,' the land surrounding the original plant was used to hunt wild game and corral domestic animals. In fact, George Merck kept a flock of 15 to 20 sheep on the grounds to test the effectiveness of an animal disinfectant. The sheep became a permanent part of the Rahway landscape.

The year 1899 also marked the first year the Merck Manual of Diagnosis and Therapy was published. In 1983, the manual entered its 14th edition. A New York Times review rated it 'the most widely used medical text in the world.'

In 1917, upon the entrance of the United States into World War I, George Merck, fearing anti-German sentiment, turned over a sizable portion of Merck stock to the Alien Property Custodian of the United States. This portion represented the company interest held by E. Merck AG, thereby ending Merck & Co.'s connection to its German parent. At the end of the war, Merck was rewarded for his patriotic leadership; the Alien Property Custodian sold Merck shares, worth $3 million, to the public. George Merck retained control of the corporation, and by 1919 the company was once again entirely public-owned.

1920s Through 1950s: Growth Through Mergers and R & D

By 1926, the year George Merck died, his son George W. Merck had been acting president for more than a year. The first major event of the younger Merck's tenure--which would last 25 years--was the 1927 merger with Philadelphia-based Powers-Weightman-Rosengarten, a pharmaceutical firm best known for antimalarial quinine. Following the merger, Merck incorporated his company as Merck & Co., Inc. The merger enabled Merck & Co. to increase its sales from $6 million in 1925 to more than $13 million in 1929. With the resultant expansion in capital, Merck initiated and directed the Merck legacy for pioneering research and development. In 1933, he established a large laboratory and recruited prominent chemists and biologists to produce new pharmaceutical products. Their efforts had far-reaching effects. En route to researching cures for pernicious anemia, Merck scientists discovered vitamin B12. Its sales, both as a therapeutic drug and as a constituent of animal feed, were massive.

The 1940s continued to be a decade of discoveries in drug research, especially in the field of steroid chemistry. In the early 1940s, a Merck chemist synthesized cortisone from ox bile, which led to the discovery of cortisone's anti-inflammation properties. In 1943, streptomycin, a revolutionary antibiotic used for tuberculosis and other infections, was isolated by a Merck scientist.

Despite the pioneering efforts and research success under George W. Merck's leadership, the company struggled during the postwar years. There were no promising new drugs to speak of, and there was intense competition from foreign companies underselling Merck products, as well as from former domestic consumers beginning to manufacture their own drugs. Merck found itself in a precarious financial position.

A solution was found in 1953 when Merck merged with Sharp & Dohme, Incorporated, a drug company with a similar history and reputation. Sharp and Dohme began as an apothecary shop in 1845 in Baltimore, Maryland. Its success in the research and development of such important products as sulfa drugs, vaccines, and blood plasma products matched the successes of Merck. The merger, however, was more than the combination of two industry leaders. It provided Merck with a new distribution network and marketing facilities to secure major customers. For the first time, Merck could market and sell drugs under its own name.

At the time of George W. Merck's death in 1957, company sales had surpassed $100 million annually. Although Albert W. Merck, a direct descendant of Friedrich Jacob Merck, continued to sit on the board of directors into the 1980s, the office of chief executive was never again held by a Merck family member.

1960s Through Mid-1980s: Diversifying, Reemphasizing Research, Surviving Various Difficulties

Henry W. Gadsen became CEO in 1965 and, as was fashionable at the time, initiated a program of diversification. Among the businesses acquired in the late 1960s and early 1970s were Calgon Corporation, a supplier of water treatment chemicals and services; Kelco, a maker of specialty chemicals; and Baltimore Aircoil, a maker of refrigeration and industrial cooling equipment. Many of these businesses were quickly divested after it was discovered that profits were hard to come by, but Calgon and Kelco remained part of Merck into the early 1990s. Under Gadsen's emphasis on diversification, Merck's pharmaceutical operations suffered.

In 1976, John J. Honran succeeded the 11-year reign of Gadsen. Honran was a quiet, unassuming man who had entered Merck as a legal counselor and then became the corporate director of public relations. But Honran's unobtrusive manner belied an aggressive management style. With pragmatic determination Honran not only continued the Merck tradition for innovation in drug research, but also improved a poor performance record on new product introduction to the market.

This problem was most apparent in the marketing of Aldomet, an antihypertensive agent. Once the research was completed, Merck planned to exploit the discovery by introducing an improved beta-blocker called Blocadren. Yet Merck was beaten to the market by its competitors. Furthermore, because the 17-year patent protection on a new drug discovery was about to expire, Aldomet was threatened by generic manufacturers. This failure to beat its competitors to the market is said to have cost the company $200 million in future sales. A similar sequence of events occurred with Indocin and Clinoril, two anti-inflammation drugs for arthritis.

Under Honran's regime, the company introduced a hepatitis vaccine, a treatment for glaucoma called Timoptic, and Ivomac, an antiparasitic for animals. In addition, while Honran remained strongly committed to financing a highly productive research organization, Merck began making improvements on research already performed by competitors. In 1979, for example, Merck began to market Enalapril, a high-blood-pressure inhibitor, similar to the drug Capoten, which was manufactured by Squibb. Sales for Enalapril reached $550 million in 1986. Honran also embarked on a more aggressive program for licensing foreign products. In 1982 Merck purchased rights to sell products from Swedish firm Astra AB in the United States; a similar arrangement was reached with Shionogi of Japan. Two years later the Merck-Astra agreement was transformed into a joint venture, Astra Merck Inc.

Honran's strategy proved very effective. Between 1981 and 1985, the company experienced a nine percent annual growth rate, and in 1985 the Wall Street Transcript awarded Honran the gold award for excellence in the ethical drug industry. He was commended for the company's advanced marketing techniques and its increased production. At the time of the award, projections indicated a company growth rate for the next five years of double the present rate.

In 1984, Honran claimed Merck had become the largest U.S.-based manufacturer of drugs in the three largest markets--the United States, Japan, and Europe. He attributed this success to three factors: a productive research organization; manufacturing capability that allowed for cost-efficient, high-quality production; and an excellent marketing organization. The following year, Honran resigned as CEO. In 1986, his successor, Dr. P. Roy Vagelos, a biochemist and the company's former head of research, also was awarded the ethical drug industry's gold award.

Although Merck's public image was generally good, it had its share of