Source: Tonishi Business Review

Before COVID-19 and SARS, what “discouraged” Chinese people the most was the hepatitis B virus.

In the 1980s, there were about 120 million people infected with hepatitis B virus in China, accounting for one-third of those infected worldwide. Nearly 20 million newborns in China are threatened by mother-to-child transmission of the virus every year, making it China's primary public health crisis. However, China's self-developed vaccine was unable to be mass-produced; China was extremely anxious to find it$Merck & Co (MRK.US)$.

MSD's hepatitis B vaccine is priced at $100 per person, generating sales of 2 billion US dollars per year based on the size of newborns in China. However, 100 US dollars was the income of an average Chinese household for half a year at the time, and the country was even less able to afford this expense.

The two sides have begun point-to-point negotiations with Mai Mang.

Negotiations have been stalled over and over again, but in the end they ended in mutual regret. MSD sent the hepatitis B vaccine to China almost free of charge with a technology transfer fee of 7 million, and promised not to sell the hepatitis B vaccine in China. Since then, China has begun free vaccination of the hepatitis B vaccine, making the virus almost far away from us.

Many people say that we owe Mo Shadong a word of “thank you.” Many people don't know about this company that gave up tens of billions of dollars and saved millions of lives in China.

From a small pharmacy to a global pharmaceutical leader who has dominated the list for over ten years, to falling to the throne, what kind of story is MSD's rise and fall to the throne?

01 From witchcraft to medicine

How long will it take to go from a small pharmacy to a global pharmaceutical giant? It took the Merck family 300 years to complete this questionnaire.

In 1668, pharmacist Friedrich Jacob Merck (Friedrich Jacob Merck) opened the “Merck Angel Pharmacy” in Darmstadt, Germany. Although they were called pharmacies, in the period when there was no concept of modern medicine, pharmacies sold secret recipes, herbs, amulets with spells, gold and silver jewelry, mummies, human skin, snake skin, etc.

After Merck passed away, pharmacies began to be passed on from generation to generation until more than 200 years later, when the advent of modern medicine brought about a major turning point in this small pharmacy.

In 1805, the German chemist Stura used “alkaloid” (biological purification) technology to extract morphine from poppy for the first time. This extract, which can relieve pain, treat insomnia, alcohol withdrawal, drug addiction, etc., pioneered modern medicine and gave the “secret recipe, witchcraft” that was popular until now.

Emanuel Merck (Emanuel Merck), who was only 10 years old and later became the 16th head of Merck Pharmacies, was thrilled by the new technology. He began to focus on purification technology, went to Berlin, Germany to study pharmacy, and finally began large-scale production and sale of morphine, codeine, and cocaine in 1827.

Merck Pharmacies gradually developed into a small pharmaceutical company. In 1855, Merck's products were already used all over the world. In 1891, in order to develop business in the new continent of America, the Merck family founded a subsidiary, Merck & Co., in New York. It is mainly responsible for the import and distribution of products.

There is no doubt about the curative effects of Merck's morphine; however, people gradually discovered that headaches, insomnia, and alcohol addiction were actually treated by morphine into drug addiction. In 1900, 300,000 people were crazy about morphine in the US alone, and morphine became a prohibited product. In order to take on the “business” of morphine, Bayer of Germany carefully developed a “new product that can replace morphine without the worry of addiction — heroin (meaning hero, also known as heroin)”. The results are imaginable.

The death of morphine did not have a fatal impact on Merck.

The point is that Merck didn't get carried away by the morphine cash cow. More than 200 years of family history allowed Merck's descendants to focus on pharmaceutical breakthroughs rather than short-term profits. In addition to morphine, they brought pharmacists to develop nearly 800 kinds of pharmaceutical and chemical products, causing Merck's business to expand wildly.

In the late 19th century, the Merck family traveled all over the world. Merck branches were established in major international cities such as London, Paris, Brussels, Vienna, Budapest, and Moscow. In 1903, Merck opened its first plant in the US in New Jersey.

The Merck family not only sells pharmaceuticals. In 1899, Merck published the world-famous clinical work guide “Merck's Book of Medicine”. Known as the “Physicians' Bible” for physicians and pharmacists, this book has been revised nearly 20 times and translated into nearly 20 languages. It has continued to be used until now, making great contributions to the standardization and science of clinical work.

In 1917, World War I broke out, and Merck, which went smoothly, faced its first major crisis in history.

As a German company, Merck was confiscated by the US government as an enemy asset. George Merck (George Merck) handed over shares belonging to the German head office and used the almost astronomical figure of 3 million US dollars at the time to bid back shares in American Merck from the US government. Since then, Germany's Merck and America's Merck have broken ties, and each developed independently.

After that, George W. Merck (George W. Merck), the eldest son of George Merck, took America's Merck and quickly took advantage of the times.

In 1933, Merck in the US established a laboratory, which attracted a large number of the world's top pharmaceutical scientists. In the 1940s and 50s alone, this laboratory trained 5 Nobel Prize scientists, and 17 Nobel laureates worked here. Short-acting anaesthetic diethylene ether, streptomycin, cortisone, benzatropine, hydrochlorothiazide... a plethora of products have come out of Merck Laboratories.

Beginning with streptomycin, Merck flourished with high-yield research and development. After World War II, when Japan had a tuberculosis pandemic, George W. Merck decided to transfer streptomycin, which treats tuberculosis, to Japan royalty-free. The decision was full of questions both inside and outside the company.

In a medical school speech, he explained his attitude:“We should always remember that medicines are made for humans, not for profit. As long as we stick to this belief, profits will follow.”

In 1953, Merck of the United States merged with Sharp & Dohme (Sharp & Dohme) of Philadelphia to become the largest pharmaceutical manufacturer in the US. According to the terms of the agreement between Merck and MSD in Germany, MSD can only use the name “Merck” in North America (the US, Canada), and only “Merck” in other regions of the world.

Entering the sixties, Merck introduced a product that changed the history of public health — the vaccine.

02 New gold mines

The discovery of human immunity and the invention of vaccines have fundamentally rewritten the history of public health. They have extended the life span of humans by 30 years compared to 100 years ago. All of this must be thanks to one person, Maurice Hilleman (Maurice Hilleman) of the Merck Pharmaceutical Research Institute.

Some people say that his life is a microcosm of modern epidemiology and vaccinology, and the story of vaccines is largely his story. There are 14 types of vaccines that almost every child in the world can get, 9 of which were invented by Hillerman.

He is revered as the “father of modern vaccines” and developed more than 40 vaccines throughout his life, including the hepatitis A vaccine, the hepatitis B vaccine, the measles and mumps vaccine, the chickenpox vaccine, the meningitis vaccine, etc. These vaccines have made those once appalling diseases completely disappear from the world.

He was also the first person to predict the timing of an influenza pandemic and successfully developed a vaccine before it reached the US. In 1957, after the pandemic ended, Hilleman joined the MSD Research Laboratory as Director of Virus and Cell Biology, determined to prevent all common diseases that endanger children's health or lives.

In 1963, Hillerman's oldest daughter got mumps. He took samples directly from her daughter's lesion and quickly invested in the development of a mumps vaccine. In clinical trials, he gave his first dose of the mumps vaccine to his youngest daughter, who had just turned one year old, and named the vaccine after her.

In 1965, the new head, Henry Gadsen (Henry Gadsen), began a vigorous diversification strategy, and MSD's business expanded to water treatment chemicals, eye drops, health care products, etc.History is always strikingly similar. Although diversification seems beautiful, few pharmaceutical companies can profit from it, and MSD is no exception.

After the 1970s, major pharmaceutical companies switched their energy from vaccines to research new drugs with higher returns. Fortunately, Hilleman's position allowed MSD to maintain its strategic strength in vaccine research and development.

Through continuous improvements to the world's first measles vaccine, he developed the only measles vaccine used in the US since then. This vaccine can save more than 1 million lives every year. Under Hilleman's leadership, new vaccine products are continuously coming out of MSD.

In 1976, John Honran (John Honran) took over the company. The company stopped diversifying and refocused its core business on the pharmaceutical field. Mercadon successively launched well-known products such as timolol, cefoxetine, sulinic acid, and diflonil.

In 1984, 65-year-old Hilleman retired, but he also led the establishment of the MSD Vaccine Research Institute and continued to work there for 20 years. Hilleman's persistence with MSD laid the foundation for the introduction of new vaccines such as rabies vaccine, cervical cancer vaccine, and Ebola vaccine, leading vaccinologists joined the company, and MSD's reputation as a “vaccinologist's home.”

In 1985, in the midst of the popularity of new drugs and vaccines, MSD took the throne of the world's largest pharmaceutical company without any suspense, with annual sales reaching 3.5 billion US dollars. However, the product did not come out of thin air. The development of every vaccine and new drug requires at least ten years of time and real money investment.

In 1986, Roy Vagelos (Roy Vagelos) became the new president. In order to maintain the company's dominant position, Vajeros paid great attention to R&D. R&D investment increased from 570 million US dollars in 1987 to 1.23 billion US dollars in 1994. He also gave R&D staff a high degree of autonomy to maintain the company's technological advantage and ability to innovate.

In 1986, Merck developed the first genetically engineered human vaccine — the recombinant rDNA hepatitis B vaccine, which was approved by the FDA for marketing. China, with 120 million people infected with the hepatitis B virus, is undoubtedly MSD's biggest market. The development of the hepatitis B vaccine in China is only at the stage of the blood-borne hepatitis B vaccine process. Not only is safety not guaranteed, but it can only be produced on a small scale.

The relevant person in charge of China has found MSD. At first, MSD wanted to sell vaccines to China at a price of “one hundred dollars per person.” Vajelos said, “We soon realised that even if we kept the price to a minimum, they wouldn't be able to afford it. This expense is equivalent to half of their years' income.”

Negotiations between the two sides stalled for a while.“We started to negotiate technology transfers, the price issue came up again, and we kept prices down again and again... I was anxious, I wanted to protect my kids from this deadly disease, and newborns should get the first vaccine within 24 hours of birth...” Vajelos said.

In the end, Vajelos transferred the latest genetically engineered hepatitis B vaccine technology to China for 7 million dollars, almost in vain. According to the agreement, MSD is required to provide a full set of technology and train Chinese personnel. It also promises to “charge no patent fees or profits, and will not sell the hepatitis B vaccine produced by MSD in China.” Later, MSD spent more than 7 million US dollars on training Chinese engineers and expatriate workers stationed in China.

Vajelos's humanist spirit is not just for China.

In 1987, after years of painstaking research, MSD's “river blindness” drug was finally approved in France. More than 100 million people around the world have lost sight due to this disease, yet most African patients are unable to buy treatment. Vajelos then decided to distribute this medicine free of charge to the whole world until this disease is eradicated from the Earth! In the end, MSD helped about 250 million people with river blindness, making river blindness almost extinct.

Their ongoing research will also be generously shared with peers to overcome some of the major diseases that plague humans. In 1987, Vajeros led MSD to share research results on HIV treatment with competitors, making great contributions to HIV prevention and treatment. MSD's great humanist spirit has made it the most respected pharmaceutical company in the world.

As George W. Merck once said,“Drugs are made for humans, not for profit. As long as we stick to this belief, profits will follow.”In 1988, Vasotec (enalapril) became the first drug in MSD's history to exceed 1 billion dollars in sales. Also, during Vajeros's tenure, Mercadon also developed major drugs such as Lovastatin, Simvastatin, and Losartan.

In the 10 years that Vajeros worked for, MSD's sales climbed all the way from 4.1 billion US dollars to 10.5 billion US dollars due to his deep belief in R&D capabilities, ranking first among global pharmaceutical companies.

However, when it comes to success or failure, MSD can't have imagined that its reliance on its own research and development capabilities would one day be the reason it fell into the limelight.

03 Valley climbing

In the 1990s, Pfizer's “market drive” and MSD's “R&D drive” faced a major collision of business ideas. MSD, which was once the leader, unfortunately lost and fell into a slump.

After the 90s, the pharmaceutical research and development sector “lost the fruit at the low end”. The investment in research and development was increasing, but the regulation of new drugs made it more and more difficult to produce. The gradual weakening of R&D pipelines and the fact that many small-molecule blockbuster products are facing a patent cliff one after another has left MSD in a “bottleneck.”

Faced with R&D difficulties, Pfizer bought Farmacia and Wyeth, Sanofi joined hands with Aventis, Astra and Jellicon, Glaxo Wicom and SmithKline, etc. all continued to harvest the market using a “strong merger” model, leaving MSD, which fought alone, behind MSD.

In 2000, MSD's pharmaceutical sales were surpassed by Pfizer and GlaxoSmithKline, falling out of the championship for the first time.

This isn't the most fatal one yet. In 2004, Mercadon, an arthritis pain reliever with annual sales of 2.5 billion US dollars, was delisted due to safety issues. According to a 2005 report by Britain's “Sunday Times”, rofexib could cause the deaths of 60,000 people around the world, a wave of lawsuits almost “flooded” MSD, and the company spent about 5 billion US dollars in compensation.

In order to change excessive reliance on R&D, MSD's three CEOs (Raymond Gilmartin, Richard Clark, and Forviser) were no longer scientists after Vajeros. MSD began adapting to the trend of the times, changing from R&D driven to market-driven, and from endogenous growth to exogenous growth.

In the 2009 global economic crisis, after Pfizer announced the acquisition of Wyeth, MSD acquired its counterpart Pioneer Baoya for 41.1 billion US dollars to counter the risk of patent expiration and new drug development costs. This is the only major external merger since MSD was founded.

As a result of the acquisition, MSD obtained biological, health care and animal health product lines from Pioneer Baoya. The products were more diversified, and the global ranking jumped from 7th place before the merger to 4th place.

However, the merger process was not an easy one. The run-in period for mergers and acquisitions was fraught with difficulties, and the company's focus on adjustments, layoffs, etc. consumed a lot of energy for the company. MSD wanted to sell some of the rib drugs from the companies it acquired, such as Keytruda, so why was no one bidding at all.

In 2011, Kenneth Frazier (Kenneth Frazier) became the CEO of MSD. MSD entered another “critical decade” of growth and began to consolidate its existing advantages.

Pfizer, which at the time relied on cutting R&D to increase profits, was highly respected in the stock market. However, in his first year in office, Fuweiser lobbied the board of directors bravely to get the board to pass a huge R&D budget of 8 billion US dollars.

The board of directors, which once paid too much attention to R&D and lost money, refused to follow the old path of the past. Furthermore, the company's total revenue shrunk drastically as the patent expires, stocks are being downgraded, and it is also facing multiple crises such as being questioned by investors. Improving research and development will inevitably worsen these situations.However, Fuweiser is convinced that only by paying attention to research and development can the company get through the bottleneck period.

He vowed that if he was unable to keep his promise, he would be willing to be dismissed from his job with a salary cut.

In 2012, MSD's “fighter” Singulair (montelukast sodium), the “fighter” for anti-allergy and asthma drugs, will lose patent protection, and sales will inevitably decline in a cliff-style manner. To recoup his losses, Fuchwitzer began searching for new growth engines in the “bulk” market, and the oncology circuit came into his sights.

In 2010, Bristol-Myers Squibb's PD-1 drug “Opdivo” came out of nowhere, showing extremely high curative effects on tumors. This is the famous “O drug.” Forweiser looked at the “bad thing” he bought — the PD-1 product Keytruda, and suddenly his eyes lit up.

In the shortest possible time, he formed a “rocket R&D team” and dispatched all of the R&D elite. In 2014, Keytruda took the lead in listing in the US, becoming the first PD-1 product to be listed in the US, successfully seizing the opportunity.

In 2015, K-drug became famous when it cured 91-year-old former US President Jimmy Carter's melanoma. K drug currently has more than 20 indications, and clinical trials are continuing, and there is a strong trend of becoming a new generation of “drug king”. In 2022, K Pharmaceuticals alone sold 20.9 billion US dollars, accounting for 35.3% of the company's revenue.

The K drug made Mershadong slowly return blood, but to get back to the top, K medicine alone is far from enough. After K drug, what Fuweiser wanted to create was “multiple products to create one place.”

He placed all of the ammunition he developed in the “mass market” — diabetes, acute disease care, vaccines, and oncology, and improved R&D efficiency by streamlining internal research and development. He is not obsessed with endogenics; he is also looking for prey everywhere, mergers and acquisitions when the opportunity arises, and begins a “three-legged” path of endogenous research and development, epitaxial acquisitions, and combined drug use.

In 2014, MSD first sold its consumer health products business to Bayer for $14.2 billion, and then began to acquire valuable external assets frequently. In September 2017, Merck acquired Rigontec, a German startup in the field of immunization, to further assist PD-1 research and development.

In the field of vaccines, the company's HPV vaccine is showing strong momentum. MSD is currently the only HPV nine-valent vaccine supplier in the world, supplying more than 70 countries and regions around the world. The HPV vaccine contributed nearly $6.9 billion in revenue in 2022.

Financial reports show that in 2022, MSD's pharmaceutical sector's revenue came mainly from the four major businesses of oncology (US$23,095 million, 44.41%), vaccines (US$10.696 billion, 20.57%), virology (US$6.317 billion, 12.15%), and diabetes (US$4,513 million, 8.68%).

In order to lay out the future earlier, he also focused his attention on the Chinese market early on.As medical reform enters the deep-water zone, generic drugs enter the era of marginal profit. In the global pharmaceutical market competition, the Chinese market will also receive more and more attention, and Forweiser began to lay out its layout a long time ago.

Today, China is gradually surpassing Japan to become MSD's second largest market in the world. The domestic HPV vaccine business, which is “hard to find”, is undoubtedly the “engine” of MSD's performance in China. In 2022, MSD Pharmaceutical's annual revenue was US$52.05 billion, an increase of 22% over the previous year. China contributed US$5.102 billion, an increase of 20% over the previous year, mainly due to sales of HPV vaccines.

04 Conclusion

Robert M. Davis (Robert M. Davis) took over as CEO in October 2021, but MSD is still enjoying the results of his battle. Some people say that the ten years Fuweiser has been in office are the ten years MSD cannot go back to. This statement is an affirmation of MSD's strategic layout over the past ten years, and it is also a source of frustration with MSD's performance during COVID-19.

With the advent of the epidemic, hundreds of companies around the world are competing for new drug research and development. Unfortunately, MSD missed the opportunity for a COVID-19 vaccine in the global fight against the epidemic. The Pfizer/BioNTech COVID-19 vaccine ComirNaty has always been at the top of the list, earning a lot of money. MSD's world's first approved COVID-19 oral drug, molnupiravir, a small molecule specific drug for COVID-19, is also gradually falling behind Pfizer's Paxlovid.

In 2022, Pfizer's revenue reached US$10.33 billion, of which US$56.7 billion was contributed by the COVID-19 vaccine and Paxlovid. However, MSD's drug has recently been mired in the questioning that “there is a risk of inducing new strains,” and some scholars have called for the world to stop using it.

In addition to this, MSD's “quasi-drug king” K drug (PD-1 inhibitor) is at the top of the racetrack. The development of new indications has been frequently thwarted, and it is also facing the problem that the patent will expire in 2023. Moreover, the flames of war are on MSD's next cash bull—the nine-valent HPV vaccine market. According to statistics from the Securities Times, there are at least 16 domestically produced HPV vaccines being studied in China, and it is expected that products will be approved one after another within the next 2 to 6 years.

In 2022, MSD spent 13.548 billion US dollars on R&D, an increase of 11% over the previous year, helping to nurture new large products. This is a battle between technology and capital. Although MSD, which is surrounded by wolves, is not easy to follow, we would like to bless this company that has selflessly helped the world.

Editor/Corrine