LET'S HEAR IT FROM THE WINNER -- AND FROM A LOSER
By Bill Saporito Dr. P. Roy Vagelos

(FORTUNE Magazine) – ^ THINK YOU had a good year? Merck just wrapped up 12 months in which sales are projected to increase over 20% to $5 billion and earnings more than 30% to $900 million. Behind those numbers are some new wonder drugs the company launched in the past two years, including Mevacor, which lowers cholesterol levels in the blood; Vasotec, a treatment for hypertension and congestive heart failure; and Primaxin and Noroxin, new antibiotics. So what's next? FORTUNE's Bill Saporito put that question to the ever anxious Dr. P. Roy Vagelos, the company's chairman, when he caught up with him at the Merck Sharp & Dohme division in West Point, Pennsylvania.

You've been No. 1 for two years in a row. How long can you keep it up? I think Merck is a very competitive company, and I push our people to be competitive. We would like to be No. 1 forever. We had a hell of a year in 1987 -- unbelievable. Our job is to deliver that in 1988.

What's so great about being No. 1? Last year it was a wonderful compliment. It did great things for the morale of the company and for our recruiting, because Merck is not a familiar corporate name. Now we are recognized on campuses, so our recruiting results have been just super. We have superstars hanging from the ceiling in most areas, and I'll be happy only when we have them hanging from every area of our organization.

What will you tell the troops about your rating in this survey? I'll tell them it probably wasn't an accident last year.

So what do you do after that? I still am anxious about what the next thing is going to be. The only way to alleviate my anxiety is to be busy on what I think is important. About two months after filing with the FDA for Mevacor, we filed our next new drug application for Zocor, another agent for reducing cholesterol, which, of course, is the strategy. While other people are talking about all the drugs they are making, we're in there with a second one. I like that.

Sounds like a religion. It's not a religion at all. It's understanding that the most important thing you can contribute as a human being is improving the lives of millions of people. We do that every year, introducing drugs and vaccines that will change the course of diseases or prevent diseases. And what could be better than that?

Are you afraid some of your folks will coast? The trick is not doing it one year or two years. The trick is to take advantage of the fact that we have numerous new products doing well to lay the foundation for long-term growth of the corporation. Pharmaceuticals is a very fragmented market, and a company that can put everything together for a series of years should be able to gather up a much larger and more significant share of the market. There are plenty of diseases left.

Pardon the expression, but how do you keep that fire in the belly? I'll tell you how we do it. We have scientists, and we have objectives. The objectives are to do something about a disease, and so we assign that task to people who are willing to take it on. It's a very high-risk business. We recognize that most of the research we do and most of the drugs we come up with will fail. But we challenge people to get into new fields, and we tell them that the objective is to make a drug, not just to discover facts and publish in trade journals.

And once they do make a drug? The fact that we have a new antibiotic like Primaxin is terrific for the people who are working on antibiotics. But what about the guys who are working on a pulmonary disease? You don't relax, because you recognize that triumph in one field only helps people afflicted by that particular ailment. I make it very clear that making a new drug for glaucoma is not helping the people working on heart disease.

Are sales and earnings going to slow down next year? Among our 100-plus prescription drugs, in 1986 we had eight that each produced $100 million a year in sales; in 1987 we had 13 that did $100 million each. Many of our new drugs are just beginning their growth cycle. Mevacor was just introduced. Vasotec, Pepcid, for peptic ulcers, and Noroxin are relatively new, and our recombinant hepatitis B vaccine just went on the market.

What's on the horizon? We are beginning clinical trials on a drug that will shrink the prostate gland without debilitating side effects. It may fail, either because it's not effective enough or because it is unsafe. But if it should succeed, I think we would have something just as important as Tagamet ((SmithKline Beckman's phenomenally successful ulcer drug)). The incidence of an enlarged prostate in older men is more common than the incidence of ulcers.

Do you enjoy the same high reputation internationally as in the U.S.? We are No. 1 in market share in the United States, Australia, and Canada. We are very strong in most major markets, but we would like to be in the top two or three everywhere in the world, and we are not yet.