In Focus

Am I A Jerk? Should I Have Bought Merck?

I love competition. The thrill of victory and the agony of defeat get me everytime! Perhaps, that's why I became an actress... or maybe I'm just a glutton for punishment. When auditioning, you should never listen to the actresses in the room ahead of you, but as a stockholder, a quick peek at the competition can prove quite insightful. In keeping with our pharmaceutical theme this week, I thought a quick peek at Merck & Co, Inc. (NYSE: MRK), a top competitor of Pfizer (a Chick holding), was in order.

The most fascinating part of the race between these two powerhouse drug companies is how vastly they differ strategically. They are definitely competing in the same race, but it may as well be in parallel universes! Back in the mid 90ís, Raymond Gilmartin took over the reins at Merck as their CEO. At the time, they were the world's largest drug company. If you recall, Hilary Clinton was a mere first lady pushing for universal healthcare. Merck made a monumental decision to hedge its bets and refocus itself on the managed care industry. No longer were they just discovering, developing, manufacturing, and marketing a broad range of human and animal health products, but now, through their Merck-Medco Managed Care Division, they were managing pharmacy benefits for more than 40 million Americans (much to the chagrin of many US pharmacists).

How this shift in their focus has played out in the last few years has been quite interesting, to say the least. Earlier this month, Fortune magazine featured an article, written by Lee Clifford, titled Tyrannosaurus Rx which provides a wonderful comparison. Merck has been typified as the "kinder, gentler" company, embracing America's seniors, as well as its own employees. Not only are they rumored to have chefs that prepare take-home dinners for much of its staff, but many Medco staffers are required to go through sensitivity classes. This includes stuffing cotton in their ears, wearing rubber gloves and eyeglasses with Vaseline smeared on the lenses. Why, you ask? So they can better understand the difficulty many of our elderly have in reading and opening prescription bottles! Wow, I'm impressed. Their leader, Gilmartin, is described as "highly ethical," emphasizing the joy his company gets when discovering a new drug, only exceeded by the reward they feel when those drugs get to the people who need them. It then comes as no surprise that Merck gave the most to charity in 1999, according to a survey of the 600 largest publicly traded companies. You can check it out in next month's issue of Worth magazine.

Oh, and have I mentioned their numbers? They're downright Chicky! In addition to their big heart, they make some pretty big bucks as well. Their gross and net margins come in at 48% and 18%, respectively, while their cash vs. long term debt (1.1) and flow ratio (1.5) hit the required mark exactly. "Hey Chicks," I hear some of you chirping, "why in the heck did you gals buy Pfizer, when Merck seems like it has such warm, fuzzy maternal qualities and it makes money?" Because being a shareholder and a humanitarian do not always go hand in hand. The purpose of buying a stock is to make money, correct? Even Wall Street has aired concerns about Merck's focus. They are no longer number one in terms of drug revenue. That top spot goes to Pfizer. (Pfizer's 1999 acquisition of Warner-Lambert didn't hurt!)

Pfizer, by contrast, has been called a well-oiled marketing machine. Their salesforce seems to have the art of swaying doctors to use their drugs down to its own kind of science. In fact, Merck's salesforce, which is half the size of Pfizer's, spends 50% less time schmoozing doctor's, and more time lobbying for health care reform. Pretty wild for a drug company, huh? Whereas Merck's preference is to create the number one drug in its field, making it easier to get an HMO to cover it, Pfizer worries more about it being the number one seller. In fact, their forte isn't necessarily creating the drugs, as it is making them famous! (If only my agent had such chutzpah!) They are cited as having over 100 partnerships with smaller drug-discovering companies. Pfizer currently has 9 drugs that hold the top sales spot in their therapeutic category, explaining their leap from 14 to number 1 in drug revenue!

Merck has its share of "celebrity" drugs too, including Zocor (lowers cholesterol), Fosomax (fights osteoporosis), Propecia (for male pattern baldness) and, of course, Pepcid. Pfizer, however, has delivered walloping punches with its stable of drugs including Lipitor (its own cholesterol-fighter), Viagra (must I tell you what it does?), and the leading prescription antibiotic, Zithromax, to name a few. However, Merck is facing expiration dates of 5 of its drug patents in 2002. UHH-OHH. The real war being waged here is between a free market society of healthcare and managed health care reform. No doubt, the CEOs of each company are glued to their televisions, like the rest of America, to see what these election results will bring. At this point, I can't see either administration having much of an effect on the status quo, further casting a shadow on Merck's decision to embrace selling drugs to a bureaucracy instead of to doctors. Time will tell. In the meantime, I think I'll enroll in those sensitivity training classes at Merck for a terrific acting exercise and then I'm sending my picture and resume to the Pfizer marketing team to represent me!