Merck & Company

Rahway, New Jersey 07065
U.S.A.
(201) 574-4000

Public Company
Incorporated: June 27, 1927
Employees: 34,800
Sales: $4.129 billion
Market Value: $22.336 billion
Stock Index: New York

While Merck currently stands as one of the most profitable pharmaceutical companies in the U.S., its beginnings can be traced back to Freidrich Jacob Merck’s purchase, in 1668, of an apothecary in Darmstadt, Germany. Located next to a castle moat, this store remained in the Merck family for generations.

In 1827 Heinrich Emmanuel Merck began manufacturing drugs. His first product was morphine. By the time he died, in 1855, Merck products were used worldwide. To ensure the quality of drugs being manufactured in the U.S. George Merck, the 24 year old grandson of Heinrich Emmanuel Merck, traveled to the New World and eventually established his own business venture. In 1899 George Merck and his business partner, the German chemist Theodore Weicker, acquired a plant site in Rahway, New Jersey.

The manufacturing of drugs and chemicals at this site began in 1903. Today this same location houses the corporate headquarters of Merck and Company and four of its divisions, as well as research laboratories and chemical production facilities. 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 have become a permanent part of the Rahway landscape.

The year 1899 also marks 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.”

During 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 Merck’s German cousins. At the end of the war Merck was rewarded for his patriotic leadership; the Alien Property Custodian sold Merck shares, worth three million dollars, to the public. George Merck retained control of the corporation and by 1919 the company was, once again, entirely public owned.

In 1926, the year George Merck died, his son George W. Merck had been acting president for over a year. During the next 25 years he initiated and directed the current 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 have been massive.

The 1940’s continued to be a decade of discoveries in drug research. In the early 1940’s 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 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, and 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 and 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. However, the merger 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 Merck’s death in 1957, company sales had surpassed $100 million annually. Although Albert W. Merck, a direct descendant of Friedrich Jacob Merck, sits on the board of directors today, the office of chief executive has never again been held by a Merck family member.

In 1976 John J. Honran succeeded the eleven year reign of Henry W. 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 anti-hypertensive 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. And 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 is manufactured by Squibb. Sales for Enalapril reached $550 million in 1986. Honran also embarked on a more aggressive program for licensing foreign products. Merck purchased rights to sell products from Astra, a Swedish company, and Shionogi of Japan.

Honran’s strategy proved very effective. Between 1981 and 1985 the company experienced a 9% 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 U.S., Japan, and Europe. He attributed this success to three factors: a productive research organization; manufacturing capability which allows for cost efficient, high-quality production; and an excellent marketing organization.

The following year Honran resigned as chief executive officer. In 1986, his successor, P.R. Vagelos, was also awarded the ethical drug industry’s gold award.

Although Merck’s public image has generally been good, it has had its share of controversy. In 1974 a $35 million lawsuit was filed against Merck and 28 other drug manufacturers and distributors of diethylstilbestrol (DES). This drug, prescribed to pregnant women in the late 1940’s and up until the early 1960’s, ostensibly prevented miscarriages. The 16 original plaintiffs claimed that they developed vaginal cancer and other related difficulties because their mothers had taken the drug. Furthermore, the suit charged that DES was derived from Stilbene, a known carcinogen, and that no reasonable basis existed for claiming the drugs were effective in preventing miscarriages. (A year before the suit, the Federal Drug Administration banned the use of DES hormones as growth stimulants for cattle because tests revealed cancer-causing residues of the substance in some of the animals’ livers. The FDA, however, did not conduct public hearings on this issue; consequently, a federal court overturned the ban.)

Under the plaintiffs’ directive the court asked the defendants to notify other possible victims, and to establish early detection and treatment centers. More than 350 plaintiffs have subsequently sought damages totalling some $350 billion.

Merck was not only beleaguered by the DES lawsuit. In 1975 the company’s name was added to a growing list of U.S. companies involved in illegal payments abroad. The payoffs, issued to increase sales in certain African and Middle Eastern countries, came to the attention of Merck executives through the investigation of the Securities and Exchange Commission. While sales amounted to $40.4 million for that year in those areas of the foreign market, the report uncovered a total of $140,000 in bribes. Once the SEC revealed its report, Merck initiated an internal investigation and took immediate steps to prevent future illegal payments.

More recently, Merck has found itself beset with new difficulties. In its attempt to win hegemony in Japan—the second largest pharmaceutical market in the world, Merck purchased more than 50% of the Banyu Pharmaceutical Company of Tokyo. Partners since 1954 under a joint business venture called Nippon Merck-Banyu (NMB), the companies used Japanese detail men (or pharmaceutical sales representatives) to promote Merck products.

However, when NMB proved inefficient, Merck bought out its partner for $315.5 million—more than 30 times Banyu’s annual earnings. The acquisition was made in 1982 and Merck is still in the process of bringing Banyu into line with its more aggressive and imaginative management style.

Problems in labor relations surfaced during the spring of 1985 when Merck locked out 730 union employees at the Rahway plant after failing to agree to a new contract. For three months prior to the expiration of three union contracts, involving 4,000 employees, both sides negotiated a new settlement. However, when talks stalled the company responded by locking out employees. The unresolved issues involved both wages and benefits.

By June 5th, all 4000 employees participated in a strike involving the Rahway plant and six other facilities across the nation. In West Point, Virginia operations were halted when union picketers prevented non-striking employees from entering the plant. Merck, however, was able to win a court-ordered injunction limiting picketing.

The strike proved to be the longest in Merck’s history; but after 15 weeks an agreement was finally reached. A company request for the adoption of a two-tier wage system which would permanently pay new employees lower wages was rejected, as was a union demand for wage increases and cost-of-living adjustments during the first year.

The $3.5 billion earned in 1986 ranks Merck second in sales in the U.S. pharmaceutical industry. In the coming decades it is likely that Merck will maintain its position as a top ranking manufacturer of drugs.

Principal Subsidiaries

British United Turkeys of America, Inc.; Calgon Carbon Corp.; Hubbard Farms, Inc.; Kelco Co.; Merck Farms, Inc.; Merck Sharp & Dohme Corp.; INTERX Research Corp. The company also lists subsidiaries in the following countries: Australia, Austria, Belgium, Bermuda, Brazil, Canada, Denmark, England, Finland, France, Italy, Japan, Lebanon, Mexico, The Netherlands, Norway, Panama, Portugal, Spain, Sweden, Switzerland, Venezuela, West Germany, and Zimbabwe.