Gilmartin, Raymond V. 1941–

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Raymond V. Gilmartin
1941–

Chief executive officer, president, and chairman, Merck and Company

Nationality: American.

Born: March 6, 1941, in Sayville, New York.

Education: Union College, BS, 1963; Harvard Business School, MBA, 1968.

Family: Married Gladys Higham, 1965; children: two.

Career: Eastman Kodak, 1963–1966, development engineer; Arthur D. Little, 1968–1976, management consultant; Becton, Dickinson and Company, 1976–1980, vice president for strategic planning; 1980–1982, president of Becton Dickinson Division; 1982–1984, president of Becton Dickinson Medical Group; 1984–1986, senior vice president; 1986–1987, executive vice president; 1987–1989, president; 1989–1992, president and CEO; 1992–1994, chairman, president, and CEO; Merck and Company, 1994–, president, CEO, and chairman.

Awards: Alumni Achievement Award, Harvard Business School, 2002; honorary LLD degree, Kean University, 2004.

Address: Merck and Company, 1 Merck Drive, Whitehouse Station, New Jersey 08889-0100; http://www.merck.com.

■ Raymond V. Gilmartin was appointed president, CEO, and chairman of Merck and Company in 1994 with a mandate to increase sales and net income at a time when health care reform and managed care organizations were forcing pharmaceutical companies to lower prices for their products. Gilmartin was successful at first as the head of a business in which he had been a relative unknown. He was listed as one of the top 25 global business managers by Business Week in 1999. Nevertheless, he soon faced such serious challenges as patent expiration of several of Merck's best-selling drugs. Gilmartin's performance in the early 2000s received mixed reviews from industry analysts, although many credited him with keeping Merck's stock earning steady dividends in the face of increased

competition. Gilmartin's colleagues also noted that he retained the loyalty of subordinates throughout his career by an approach to management that allowed them significant autonomy in their respective fields of expertise.

EARLY CAREER

Gilmartin was the first member of his immediate family to attend college. When he arrived at Union College in Schenectady, New York, in 1959, it was the furthest he had ever traveled from his home in Sayville, Long Island. Gilmartin played football and lacrosse for the small liberal arts school while he studied electrical engineering. After graduating from Union in 1963, he signed with Eastman Kodak Company as a development engineer. Three years later he decided to attend the Harvard Business School. "I learned that an engineer whose desk was close to mine at Kodak had been accepted by the school," said Gilmartin when Harvard honored his achievement in 2002. "I said to my fiancée, 'Gee, if he can do that, so can I'."

After receiving his MBA, Gilmartin spent the next eight years working for Arthur D. Little, a management consulting firm. In 1976 he joined Becton, Dickinson and Company (BD), a producer and distributor of medical supplies, as vice president for strategic planning. Over his 18-year tenure at BD, Gilmartin rose through the managerial ranks holding several different positions, including the presidency of the company's medical group. He was appointed president of Becton, Dickinson in 1987 and given the post of chief executive officer in 1989. He became chairman of BD in 1992.

Many industry analysts considered Gilmartin's leadership a critical factor in smoothing Becton, Dickinson's transition from a regional to a multinational company. For example, he was credited with restructuring the company during his tenure, a move that included eliminating several layers of middle management. The restructuring ultimately allowed BD to adapt to the growing demand for lower-priced hospital equipment that emerged during the 1980s.

Around the time that Gilmartin became president of Becton, Dickinson, he saw that the company faced stiff competition even though it was growing rapidly and earning annual revenues of around $2 billion. To spur creative thinking, Gilmartin introduced a less formal approach to internal management. He encouraged individual managers to form teams to pursue innovations and allowed the heads of BD's 15 divisions to develop their own business strategies. Edward Ludwig, who became chief executive of the company after Gilmartin left, told a reporter from the local newspaper years later, "You always knew where Ray stood on an issue, and he always invited debate to make sure we got it just right" (The Record [Bergen County, New Jersey], October 19, 2003).

ON TO MERCK

In 1994 Gilmartin was recruited to be the new president and chief executive officer of Merck, the large pharmaceutical firm headquartered in New Jersey. He was also in line to assume the company's chairmanship several months later on the retirement of the present chairman, P. Roy Vagelos. Industry analysts were taken aback by Merck's decision because Gilmartin was the first chief executive and president recruited from outside the company in its century-long history. Furthermore, he represented a departure from Merck's previous pattern of hiring former scientists like Vagelos, who had directed Merck's research laboratories before he took over the company, as its managers and corporate leaders. Perhaps most disturbing to industry watchers was the fact that Gilmartin had had no previous experience in the pharmaceutical industry.

Some analysts, however, viewed Gilmartin's appointment as an attempt to give Merck a fresh perspective, as the company had passed over several other internal candidates—including its head of research, executive vice president, and chief financial officer at the time. Other analysts pointed out that Gilmartin's former company was also involved in the health care industry. Merck board members noted that Gilmartin was familiar with the workings of a health care system undergoing reorganization because Becton, Dickinson had a long history of selling its products to managed care organizations and other large buying groups. Vagelos commented in an article in Chain Drug Review that he thought that Merck had made the right decision in choosing Gilmartin precisely because hospital suppliers like Becton, Dickinson had been dealing with cost-containment issues long before pharmaceutical companies. Vagelos added that Gilmartin "[had] learned the lesson of staying ahead technologically, offering advantages to his customers and watching his own costs (July 18, 1994).

One of Gilmartin's first moves after assuming the leadership of Merck was to meet with a number of employees to discuss the company's future. According to an article that appeared in the Harvard Business School newsletter in 2002, Gilmartin said, "I met with a lot of people and asked two questions: 'What do you think are the major issues we face? And if you had my job, where would you put your priorities?'" This approach won him the approval of Merck's employees.

Gilmartin also decided to institute a cost-cutting program in order to increase the company's stock earnings. This effort included divesting peripheral businesses, including a specialty chemicals group. His most important immediate mission, however, was to stimulate the development of a new generation of important drugs to replace key Merck products whose patents were on the verge of expiring. As a result, Gilmartin continued the company's commitment to research and development via increased research manpower and spending. Over the next three years, Merck's annual sales and net income rose steadily. He also oversaw the launching of eight new drugs within 18 months. Overall, Merck brought an unprecedented total of 17 new drugs to market between 1994 and 2001 and increased its revenues from $15 billion to nearly $50 billion a year. Part of this success was also due to Gilmartin's expansion of Merck's overseas presence. The company eventually became one of the top American-based pharmaceutical companies in Europe.

RECURRENT CHALLENGES

Gilmartin's string of successes in the 1990s did not continue into the new millennium. Merck faltered during 2001 as its shares went down 38 percent. When the company disclosed that its profits would not increase in 2002, its stock price fell 12 percent in two days. The one-time largest drug producer in the world had fallen behind its two largest competitors, Pfizer and GlaxoSmithKline.

In addition to slumping stock prices, Merck confronted several additional challenges in 2002. Although the company had recently developed some well-regarded new drugs, industry analysts pointed out that several of its most profitable products would soon be subject to general marketing by other firms. In particular, Merck stood to lose $4 billion in annual sales when five of its best-selling drugs lost the last of their patent protection from less expensive generic competitors. For example, Merck's patent for the heartburn drug Pepcid, which had brought in $775 million in annual sales, expired in 2001. In addition, the analysts noted that in four years the company would face another serious financial loss when it lost its exclusive rights to Zocor, a cholesterol drug that accounted for $7 billion of sales a year.

Gilmartin, however, kept a positive outlook in spite of these setbacks and predicted that Merck would do well once again. He designated nearly $400 million of the company's $1 billion basic research budget to develop new drugs for such brain disorders as Alzheimer's disease, stroke, Parkinson's disease, and schizophrenia. Nevertheless, analysts noted that Merck had little experience in the area of drugs for central nervous system disorders, especially when compared with its biggest rivals.

Gilmartin had made several other moves to protect his company's future. The most important of these was the formation of a joint venture with Schering-Plough to produce a new cholesterol drug that blended Zocor with another agent. If the joint venture proved to be successful, Zocor's patent would be protected until 2013. In spite of this initiative, however, many analysts believed that the only way Merck could prosper or Gilmartin survive as chief executive would be to merge the company with another major pharmaceutical firm.

Many analysts maintained that although Merck's difficulties stemmed from several different sources, Gilmartin had not provided the proper leadership to overcome them. Part of the problem, according to Fran Hawthorne, author of The Merck Druggernaut: The Inside Story of a Pharmaceutical Giant, was that Gilmartin had added new layers of middle management to the company bureaucracy, which in turn led to turf wars and culture clashes. Moreover, original ideas had to go through the expanded bureaucracy and new projects tended to die in committee. Hawthorne also wrote in the journal Chief Executive that Merck had so far failed to come up with a "blockbuster to replace its five big-selling drugs, which recently lost their patent protection. Turnover has reportedly doubled, while morale has sagged" (June 2003).

By the end of 2003, Gilmartin faced more setbacks as late-stage testing on four new drugs was stopped, thus derailing the company's marketing timetable. Merck had also dropped what many analysts considered a bombshell when it made its earnings release in October of 2003. The release outlined the company's plans to eliminate thousands of jobs. Gilmartin then followed up these negative reports by announcing economy measures within Merck's wholesale distribution program that would result in a one-time revenue loss of approximately $650 to $750 million and a loss of earnings per share from continuing operations of 18–21 cents in the fourth quarter of 2003. Analysts noted that Gilmartin had acted quickly but still resisted buying into a rival company to solve Merck's problems. Gilmartin had previously explained his wariness of mergers to a reporter from WorldLink : "I also think it is questionable whether or not there really are any advantages to scale [in merging], once you get beyond a certain size" (July–August 2001). Two years after that interview, many industry insiders predicted that Gilmartin and Merck would find themselves in the end on the losing side of a wave of mergers in the pharmaceutical industry.

GILMARTIN FIGHTS BACK

Gilmartin defended his leadership of the company during Merck's annual business briefing in 2004. He maintained that the decision to stick to what many considered an old-fashioned strategy of emphasizing original research rather than late-stage in-licensing of drugs (purchasing marketing rights to a drug developed by another company) or their outright acquisition from other companies would prove to be more profitable in the long run as Merck developed new medicines.

Gilmartin also outlined some of the company's ongoing efforts to recover its position of leadership. He said that Merck would reduce its cost structure, partly through eliminating some 4,400 jobs. He also stated that the company was working on speeding up the process of drug development from initial discovery and clinical trials to regulatory approval and marketing. Gilmartin stressed that the company currently had several drugs at the clinical trial stage that might soon be available to the general public. For example, the company was developing new medications that would address such major public health issues as cervical cancer and AIDS.

With regard to the merger question, Gilmartin noted that, although no major mergers had yet been formed, Merck had made several strong alliances with such companies as Schering-Plough, GenPath, Neuogen, Amrad, and Actelion. In fact, the company had been very active with smaller licensing transactions over the previous two years, moving from ten agreements in 1999 to 72 through 2002 and most of 2003. As reported in Medical Marketing & Media, Gilmartin told those attending the annual business meeting, "Despite recent setbacks, we are pursuing the strategy that is right for Merck and in the best interests of our shareholders" (February 2004).

MANAGEMENT STYLE

Gilmartin's management style was summarized in the commencement address that he gave the graduating class of Union College in 1999. In that address he defined his philosophy of life, which he also had applied to his business career. Gilmartin believed that taking risks is a necessary step toward creating great opportunities and that these opportunities can emerge from failure as well as success. He advised the graduates to follow their instincts in terms of pursuing lines of work that they enjoy while at the same time acting with ethical integrity. "Genuine success depends on your values and your ethics." Gilmartin added that he had emphasized the importance of ethical values to his colleagues at Merck when he joined the company as a relatively unknown outsider. He was quoted as saying, "I made it clear I was willing to take the risks necessary to lead a company in an industry that was facing difficult times. I made it clear that I was not just in it for immediate results or personal glorification, but for the long haul" (Union College Magazine, Summer 1999).

Colleagues, analysts, and Gilmartin himself described his management style as a preference for delegating day-to-day activities to subordinates while setting the company's overall strategic direction. For example, Gilmartin quickly selected Merck employees to form his management team during his early days as chief executive because he recognized that they had the insider expertise that he lacked. In an interview with Lewis Krauskopf for The Record of Bergen County, New Jersey, Gilmartin noted, "The style of management that I have, basically, is to recognize the fact that I'll never be as expert in any of the areas of the company as some of my direct reports are" (October 19, 2003).

Critics of Gilmartin's approach pointed out, however, that the extra layers of bureaucracy that he had added to Merck's structure held up the company's development of new research projects and marketable products. Hawthorne concluded in Chief Executive that Gilmartin's personality and management style also retarded Merck's progress because he was much less accessible than his predecessor. She quoted former international and vaccines executive Simon Benito as saying, "Employees seldom see him and therefore feel that they do not know him. Consequently, they are afraid of taking risks in case they make a mistake" (June 2003).

Although Gilmartin generally kept a low profile at Merck, he declared his conviction that business leaders and companies should take leadership roles on important social issues that were once the strict purview of government and social service organizations. As an example of such leadership, Gilmartin pointed to Merck's decision not to profit from the sale of its HIV/AIDS medicines in the world's poorest countries as well as its work with foundations and other groups to attack the HIV epidemic at local levels.

Despite the larger role that Gilmartin saw for business within the wider society, he also maintained that he was not interested in being a celebrity CEO. He criticized the media for their tendency to glamorize certain business leaders. Gilmartin said, "Chief executives are too often seen as high-profile dealmakers rather than problem solvers who move their companies forward in competitive and innovative ways" (2002). He had once told Brian Dumaine in an interview for Fortune while he was still the CEO of Becton, Dickinson, "We're creating a hierarchy of ideas. You say, 'This is the right thing to do here,' not 'We're going to do this because I'm boss'" (June 17, 1991).

TAKING THE RIGHT STEPS

While some analysts saw Merck's slide from dominance in the pharmaceutical industry as indications that Gilmartin would lose his job, others noted that he had taken a correct first step in cutting costs. They also observed that he wisely refused to cut back on spending for research and development, which is the lifeline of any pharmaceutical company. As a result, many believed that Gilmartin was putting Merck on the path to recovery from its current problems. An article in BusinessWeek Online quoted Gilmartin as saying, "In an environment driven by increasing competition, cost-containment pressures, and greater customer demand for value, we have examined every aspect of our business, at every level, to identify ways to more effectively address these challenges."

In addition to his duties at Merck, Gilmartin served as a director of General Mills and Microsoft as well as a director of the United Negro College Fund. He was also chairman of the International Federation of Pharmaceutical Manufacturers Associations, the Healthcare Institute of New Jersey, and the Valley Health System. He was a member of the Business Council and Business Roundtable, the board of associates of the Harvard Business School, and the executive committees of the Council on Competitiveness and the Pharmaceutical Research and Manufacturers of America.

See also entries on Becton, Dickinson & Company, Eastman Kodak Company, and Merck & Co., Inc. in International Directory of Company Histories.