Merck's Vaccines: Why the Company's Down, but Definitely Not Out

Given it's late-stage pharma failures, Merck now finds itself importantly dependent on its vaccine pipeline--the majority of its phase III projects. Its commitment to innovation and willingness to self-fund large programs created major vaccines with drug-like potential, and little competition, itself a hallmark of the business to which Merck, and few other companies, has remained loyal. But the costs and risks of the program raise questions as to its long-term viability at a time when Merck's profits are under increasing pressure.

When Merck & Co. Inc. moved in 1992 into its gleaming new headquarters, hidden in the woods of rural Whitehouse Station, NJ, it seemed bravely symbolic—the company had never seen itself as part of the hurly-burly of the rest of the pharmaceutical industry. It went its own way, strategically and scientifically, and had rewarded shareholders with years of double-digit returns.

But as Merck's business has fallen on increasingly hard times, the isolation of the Whitehouse Station headquarters now seems more ominously symbolic of a company that didn't see competition coming, didn't recognize the increasing risks of highly innovative research, and didn't seize the partnering opportunities which have driven the businesses of many of its rivals. Over the last three years, Merck has seen its vaunted cardiovascular franchise—the company's most important business--retreat before onslaughts from Pfizer Inc. , Novartis AG , and most recently AstraZeneca PLC . Merck's newest important drug, the ezetimibe (Zetia)/simvastatin (Zocor) combination, whose economics it must share with Schering-Plough Corp

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