Most boys find their idols at political rallies, baseball stadiums or concert halls. When Pindaros Roy Vagelos was a teenager, he found his heroes at a luncheonette. In the late 1940s he mixed malteds and cleaned counters after school at Estelle's, the diner that his Greek immigrant family owned in Rahway, N.J. The town was, and still is, home to the laboratories of Merck, the giant pharmaceutical firm, and at lunchtime the company's research scientists often wandered into Estelle's, six blocks away. There Vagelos eavesdropped as the men who made Merck's miracle medicines talked about their work in the lab churning out such wondrous substances as penicillin and vitamin B-12. "They seemed to be leading a very exciting life," he would later recall.
Vagelos, 58, decided to make that life his own, and he succeeded beyond his greatest expectations. A local boy who made really good, he traded his apron for a doctor's smock at medical school, eventually joined Merck and by 1986 had become the company's chairman, president and chief executive officer. Under the spell of Vagelos' visionary vigor, the company has recovered from a tepid performance in the early 1980s to become the world's No. 1 prescription drugmaker. Though many Americans probably could not name a single Merck product, especially since its Sucrets sore-throat lozenge and Calgon bubble- bath brands were sold in 1977, physicians and pharmacists are very familiar with the company's 100 drugs, from antibiotics to anticholesterol pills. Merck's sales surged by 23% in 1987, to a record $5.1 billion, as profits ballooned by 34%, to $906.4 million.
While many U.S. companies grumble that they cannot compete in the tough global environment, Merck pulls in more than half its sales from overseas customers. At a time when much of corporate America is focused on the next quarter's bottom line, Merck plows a higher chunk of its revenues into research and development (11%) than any rival drug company. Right now it has 50 new medicines in the works. And while other corporate chieftains spend much < of their time prowling for acquisitions, Vagelos prefers to look inward, spurring the research effort, boosting productivity and instilling a keenly competitive spirit.
A giant white banner in Merck's campus-like Rahway headquarters reminds visitors that they have arrived at AMERICA'S MOST ADMIRED COMPANY, an accolade given the firm by a FORTUNE magazine survey in January. But Vagelos finds such praise unsettling. Says he: "You'll die if you sit on your laurels."
That is especially true in the risky, cutthroat pharmaceutical business, where the typical product costs about $125 million to bring from the laboratory to the pharmacy shelf. Although drug patents can last up to 22 years, firms must test a product for several years after a patent filing to win approval from the Food and Drug Administration. That gives competitors, who have access to the filing, time to tinker with a patented compound and make it different enough to qualify as a new drug. Growing, too, are the ranks of generic-drug producers who do little or no research and sell copies of older drugs at deep discounts. Their share of the $28.3 billion-a-year U.S. market for prescription drugs is likely to double by 1990, from $1 billion in 1987. Name-brand drugmakers like Merck must produce or perish.