Merck, the largest drug manufacturer in the United States, was founded when Theodore Weicker came to the States in 1887 to establish an American branch of E. Merck AG, a German chemical company. The American branch at first served as an importer for the German parent company; and it was only in 1904 that Merck opened its first American factory, in Rahway, NJ. Merck's first research lab, opened in 1933, isolated and manufactured vitamin B-12 and produced the first steroid, cortisone. During WWII, George Merck, CEO and grandson of the German founder, gave 80 percent of Merck's German-held stock to the U.S. Government, keeping the other 20 percent for himself. After the war, the Government holdings went public. Merck researchers earned five Nobel prizes in the 1940s and 1950s, and a 1953 merger with sales powerhouse Sharp & Dome helped the drug conglomerate achieve both additional research prestige and a formidable market share.

Beyond pharmaceuticals

The company has in recent years tried to move outside its core pharmaceutical business. Merck made a foray into the managed-care market with its 1993 purchase of Medco Containment Services, a pharmacy-benefits manager. In August 1998, the company reached a settlement with the Federal Trade Commission to end a longstanding antitrust inquiry into the company's purchase of Medco (now called MerckMedco Managed Care LLC). Under the agreement, Merck pledged unrestricted access to prescription drugs for its health plan customers and to keep confidential market information from being leaked from company officials to its benefits-management subsidiary. The settlement came at a time when the federal government was scrutinizing the relationships between the pharmaceutical industry and company-owned prescription benefit managers. Merck has expanded in other areas as well. The 1997 merger of Merck's animal health divisions with the French company Rhone-Poulenc ensured Merck's dominance in the veterinary market.

Committed to in-house research

However, the company's main emphasis remains pioneering pharmaceutical research. Merck's extensive product line includes Recombivax HB, the first recombinant vaccine for Hepatitis B, Pepcid gastronomical medicine (as well as the over-the-counter Pepcid AC), Cozaar (anti-hypertension), MMR II (measles, mumps, & rubella vaccine), and Varivax (a chicken pox vaccine), among many others. After ten years of struggling to create an effective treatment for HIV, Crixivan, a protease inhibitor used for the treatment of HIV in adults, was introduced to much fanfare in 1996. The revolutionary drug was so desperately needed that the typically stringent FDA released it for use after only 42 days of trials. In the months that followed, Crixivan proved to reduce AIDS-related deaths by 60 percent and, when used in combination with two other HIV drugs, cut the spread of HIV infection by 90 percent within an 18-month period. Crixivan is now the most widely used protease-inhibitor. What makes Merck distinctive from other drug manufacturers is its commitment to in-house research, in contrast to competitors that buy up ideas and research from young biotech firms or that contract freelance specialist organizations. Only 5 percent of Merck's research spending is distributed outside of the corporation, compared to rival pharmaceutical firms, who outsource up to 80 percent of the research. Though this tactic has brought mixed reactions from the pharmaceutical industry, Merck has repeatedly proven the viability of its strategy with a steady stream of successful innovations, most notably Crixivan.

Work at Merck

In the meantime, Merck gets top ratings as a workplace. Fortune magazine ranked the firm ninth in its 1998 list of "The 100 Best Companies to Work For." Merck is proud of its diversity record. More than half of its United States employees are women, and nearly one-fourth are ethnic minorities. These solid numbers hold up on the managerial level, where 32 percent of managers are women and 16 percent are members of minority groups. Working parent-friendly Merck allows alternative work arrangements such as flex-time, job-sharing, and telecommuting. The company sponsors a Black Employees Network to provide both personal and professional support to workers at all levels. The former president of Spelman College, Dr. Johnnetta Cole, is one of two African-Americans on Merck's 12-member Board of Directors. In 1999, however, a group of black employees from Merck's Montgomery manufacturing plant filed a lawsuit against the company after one white employee sent out a racist e-mail. The minority employees claimed that they were being treated unfairly and were not given the same promotion opportunities as other employees.

Competition shakes business

The company's progressive employment policies haven't prevented it from taking some lumps of late. In July 1998, the company announced that it would not meet annual profit projections after disappointing second-quarter earnings. Merck's disapointing numbers panicked investors - its stock had slid more than 9 percent in two days following the announcement, costing the company more than $11 billion in market capitalization. Analysts say Merck's weak performance is due to increased competition in markets the company usually dominates: AIDS and cholesterol. Sales of Crixivan, once Merck's cash cow, are being impacted by Agouron Pharmaceuticals' Viracept, a protease inhibitor that is easier to take. The company's cholesterol-lowering Zocor, meanwhile, is being soundly whipped by Warner-Lambert's Lipitor, a more potent drug in the category. The company is also getting ready for the expected loss of patents for some of its major drugs including, Pepcid, Vasotec, and Mevacor, between 2000 and 2002, although the company claims that it does not expect any large loss in sales. Losing the patents to four of its biggest-selling drugs, whose sales add up to $3.5 billion in the U.S. will be hard for Merck, but the company hopes newer medicines will offset the losses.

Pipeline hopeful

Merck is hoping to get a boost from Vioxx, its new arthritis drug, released in 1999. One of a new class of drugs called Cox-2 inhibitors, Vioxx is believed to cause fewer gastrointestinal problems than other arthritis treatments. More importantly, Vioxx has been FDA approved for the treatment of severe pain associated with conditions other than arthritis, such as menstrual cramps. Merck is thus able to capitalize on a much wider audience than competitors like Monsanto, whose Cox-2 inhibitor Celebrex has only been approved as a treatment for arthritis. The competition between these two drug companies has, therefore, become fierce. However, research done in 1999 has found that Cox-2 inhibitors may actually worsen the pain and inflammation that the drugs are supposed to alleviate - meaning that Monsanto and Merck will soon be forced to temporarily put aside their competition to rally support for the new drugs.

Merck goes virtual

Merck-Medco Managed Care LLC announced its intent to transmit mail service prescriptions over the Internet through Healtheon Corporation, a leading e-commerce provider for health care, in 1999. According to Merck, approximately 1,800 physicians have the necessary technology to administer prescriptions online. Merck-Medco also launched a new online prescription drug service at www.merck-medco.com to provide plan members with clinical information on hundreds of commonly-prescribed medications. Furthermore, Merck-Medco has agreed to use Quidel's Quickvue H. pylori tests for use in its health care management program. The company also signed a research agreement with Deltagen, Inc., focusing on identifying new genes. In late 1999 CVS became Merck's official online pharmacy.

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