Hard to believe that only a couple years ago, analysts were saying last rites for Merck & Co. as a plague of trial lawyers sized up their prey, visions of multi-million dollar billings dancing in their heads. Bigfoot business reporters played dodgeball with a formerly sterling corporate reputation, sketching caricatures of unfeeling suits that would make Thomas Nast blush. Investors were in a near-panic, and company morale was in the dumps. The firm that, more than any other, laid the foundations for the pharmaceutical industry seemed down for the count.

Not anymore. Merck is back. With an eye-popping five innovative new products coming to market and a pipeline that’s the envy of its peers, the firm’s staid approach and science-centric focus are finally bearing fruit.

“They’ve had more approvals and launches than any company has ever had in a single year, to my knowledge,” says Lehman Brothers analyst Tony Butler, “all of them entirely new therapies, with exception to Zostavax.”

Merck was the odd man out in an age of consolidation, co-marketing and in-licensing. As the Street’s favorites turned ever more to marketing, mergers and acquisitions to meet their targets, Merck remained stubbornly focused on its old-school formula of in-house development and truly innovative treatments—or at least, so went the cliché. When the 2004 withdrawal of Vioxx followed the failure of two of Merck’s hottest near-term prospects, Wall Street wags were ready with the “I told you sos.” 

In May 2005, Dick Clark, an operations guy and longtime company insider, replaced Raymond Gilmartin as president and CEO. The company vowed to cut 11% of its global workforce—around 7,000 jobs—by 2008, and to sell or shutter five of its manufacturing facilities in order to construct “a leaner, more cost-effective and customer-focused manufacturing model” yielding savings of $4 billion by 2010. The volume of Vioxx-related litigation in the works spiraled, and the 2006 expiration of Merck’s Zocor patent, worth $4.4 billion in 2005, loomed.

Merck worked hard to regain the confidence of its key constituencies, launching its first-ever corporate ad campaign, executed by Ogilvy & Mather, last year and taking a more open approach with the press and the financial community. “I don’t think anything’s really changed at Merck except the communications,” says Lehman Bros.’ Butler. “After the Vioxx withdrawal, with questions around their own portfolio and their management, Merck began increasing the information flow, partly around the analyst briefing last year, including a five-year-forward guidance, which no company has ever done.” (Obligatory disclaimer: Lehman Brothers has received non-investment banking-related compensation from Merck for securities-related services within the last 12 months.)

And analysts have changed their tune, encouraged by the results, as well as the tone. “Both in terms of product approvals and exceeding financial targets as well as early success on the marketing front, Merck is the best performer of the US pharmas,” says Deutsche Bank’s Barbara Ryan.

In truth, Merck was always a much savvier marketer than its buttoned-down reputation would suggest—and the launches currently under way are giving the firm a chance to shine. Last year, the company seized the vanguard of a revolution in detailing by supplying 5,000 of its reps with tablet PCs running Proscape software. The tablets ensure compliance with fair balance requirements —another way Merck is putting ethics back in ethical pharmaceuticals.

“They’re constantly pushing every channel to the next step,” says Forrest King, partner at Merck roster agency Juice Pharma. “It’s a mantra over there. Everyone’s always asking: What’s next?”
Merck also initiated an inventive, exhaustive study, in collaboration with the FDA, of how consumers “read” TV ads, offering the prospect of future fair balances vetted for impact and accessibility. Under the direction of executive director of marketing communications Charlotte McKines, the company recruited Ed Slaughter, who ran Prevention Magazine’s DTC study, to head the program.

“We’re trying to cut to the issues at hand in DTC advertising,” Slaughter told MM&M. “Every time an FDA official gets up and speaks at a conference, they say, ‘If anybody has any data on this, we’d love to see it.’ This is an attempt to move the ball forward and answer that in a scientific, data-driven way.” Going forward, the firm will rely less on broadcast to reach consumers and more on targeted media.

Merck’s outreach to physicians doesn’t stop with sales reps. Through MerckMedicus.com, the company offers docs a suite of research tools including abstracts, a medical dictionary, podcasts, anatomical slides, e-CME info and PDA tools. MerckSource.com, its consumer counterpart, gives docs a place to refer their patients for further information. Your Health Now, distributed free to doctors, draws on the Merck Manual to offer health information in the waiting room. 

It’s hard to argue with the award-winning, market-moving power of campaigns like those for Singulair and Merck’s joint venture with Schering-Plough on Vytorin—brands that Merck has backed to the hilt. Merck and Schering-Plough spent an estimated $155 million on Vytorin consumer advertising in 2005, making it the third-most advertised drug brand of that year, according to TNS Media Intelligence, and spent another $133 million on professional promotion, according to IMS Health. The “two sources” campaign is a triumph of clever messaging and gently humorous creative with stopping power. 

“They have a very impressive process on the front end, prior to launch,” says Lois Moran, a partner at Juice Pharma. “They’re willing to make that investment to get it right the first time, and then see it through.”

The firm’s pipeline is brimming with late-stage prospects, including promising candidates for the treatment of cardiovascular disease, HIV and insomnia. Merck has five drugs in Phase III development, and this year expects to file: HIV drug MK-0518; insomnia treatment Gaboxadol, a joint venture with H. Lundbeck; and MK-0524A, which raises good cholesterol and could be submitted in combination with Zocor in 2008. Arcoxia, the company’s next-generation Cox-2 inhibitor, is under review, as are Janumet, for type 2 diabetes, and Emend IV, an anti-emetic for chemo patients.

Merck continues to face steep challenges—most significantly, the cloud of ongoing Vioxx litigation. As of December, 27,200 lawsuits had been filed against the company for Vioxx-related claims, though if the firm can build on its string of early court victories, that number is likely to dwindle as trial lawyers recalculate their odds of success. But with the foundations of a remarkable turnaround in place and projected compound annual revenue growth of 4-6% through 2010, the Street is giving the firm a fighting chance.

“They’ve always been thought of as the company that takes a more scientific approach, without the glitz and marketing prowess of some of their competitors,” says Dana Maiman, president and CEO of Merck roster agency DraftFCB Healthcare. “Yet at the end of the day, they always made the hard choices, and now I think they’re strong and really poised for the future.”