By REED ABELSON

nvestors believe that Raymond V. Gilmartin is wrong. He is unmoved.

In the last few years, as the pharmaceutical industry has consolidated vigorously, Mr. Gilmartin, the chairman and chief executive of Merck & Company, has stubbornly chosen to go it alone. He says the company can succeed by finding breakthrough drugs, not by joining forces with a competitor or making some other bold move. "The only thing that matters in this business is the ability to discover drugs," he said.

Advertisement

That old-fashioned approach puts him sharply at odds with most top drug executives. "The industry has gotten too enamored of flashy," said Mr. Gilmartin, 61, a genial and unassuming executive who, despite his warm smile, will never be accused of dazzling Wall Street. He is the antithesis of the charismatic chief executive who has been discredited of late, and even the whiff of potential accounting controversy that surrounded a Merck unit this year has not tainted his reputation.

"What really pays off for shareholders is execution and getting it done," he said.

While most of his rivals are marketing drugs more aggressively and have been quicker to spot opportunities outside their own laboratories, spending whatever is necessary to get them, Mr. Gilmartin consistently argues that scale is not the issue.

"He actually does believe earnings matter" and that products should offer real value, said William G. Bowen, president of the Andrew W. Mellon Foundation and a longtime Merck director. "If those are old-fashioned views, so be it.

"You see what you get, and you get what you see," he said, adding, in a clear reference to all the sleight-of-hand artists now being flushed out of corner offices, "I prefer that."

But in the last few weeks, after Pfizer, the No. 1 company by sales, said it was buying Pharmacia, the pressure on Mr. Gilmartin has intensified. Merck was once the nation's premier drug company, but is already No. 3 and may well slip further. Its stock has sunk to $47.86, half of what it was in late 2000. Its fiercest rival, Pfizer, has already demonstrated the prowess that comes with mergers and marketing muscle. If Pfizer's combination with Pharmacia goes through, Merck will face an even more potent competitor with drug sales about twice its $21 billion last year. GlaxoSmithKline, the second-largest player with drug sales of $25 billion, is also said to be hunting for an acquisition.

"Compared to Pfizer, Merck is a second-tier drug company," said Hemant Shah, an independent pharmaceutical analyst. While Merck "has great scientists," finding potential blockbuster drugs has become extremely difficult, he said. And the combined research allocation by Pfizer and Pharmacia is more than twice that of Merck, making the new entity an even more formidable rival.

Merck is not alone in its struggle to find new medicines, but Mr. Gilmartin's wager on its pipeline and its ability to spot promising compounds elsewhere appears particularly risky. The company has found itself in an arid period in the last year or so as best sellers like Mevacor and Pepcid lost their patent protection and are being devoured by generic rivals. Sales of Vioxx, one of a new wave of painkillers, have been disappointing, and Merck has temporarily withdrawn its application for Arcoxia, a successor drug, in the United States. While sales of Zocor, its cholesterol drug, are expected to top $7 billion this year, Zocor loses its patent protection in 2006.

"The Zocor patent expiration terrifies us," said Samuel D. Isaly, who manages the Eaton Vance Worldwide Health Sciences fund and has avoided investing in Merck because he is unconvinced of the promise of Merck drugs in development. "What is visible is uncertain or not big enough."

While Merck has tremendous ability to develop new medicines, he said, "we think the original work in Merck labs has been pretty sparse."

Other investors appear to share Mr. Isaly's concerns. Merck's stock has fallen 28 percent over the last year; it now trades slightly below its level five years ago. While investors have shied away from all drug stocks lately, given the difficult regulatory environment and a lack of promising new medicines, Merck's peers have still managed an average gain of about 20 percent over five years. Pfizer is up about 60 percent.

Pfizer's planned purchase of Pharmacia brings in "a stable of patent-protected products," and years of cost savings from shedding overlapping operations, said Mark Hesse-Withbroe, a research analyst at Victory Capital Management, which owns shares of Pfizer and Merck.

Many Merck rivals have joined forces to gain strength. In recent years, SmithKline Beecham coupled with Glaxo Wellcome, Pfizer bought Warner-Lambert and Pharmacia & Upjohn added Monsanto. Analysts and investors expect the industry to consolidate further.

But Merck remains true to its history, its fate resting in the quiet person of Mr. Gilmartin. Recruited eight years ago from Becton Dickinson, a maker of medical devices, Mr. Gilmartin seemed an unlikely choice to follow P. Roy Vagelos, the man credited with transforming Merck into an industry leader. Mr. Vagelos was a well-regarded scientist who ascended after heading Merck's research efforts; Mr. Gilmartin is an engineer who came to Merck with no direct experience in pharmaceutical research.

But Mr. Gilmartin, who has relied heavily on Edward M. Scolnick, the physician who has been Merck's long-term chief of research, has continued to emphasize the importance of finding breakthrough drugs. Mr. Gilmartin argued that Merck had faced similar concerns over its pipeline early in his tenure and that the company proved the skeptics wrong by introducing 18 new drugs since 1995.

"We were never threatened or concerned by the competition," Mr. Gilmartin said.

He is nothing if not steadfast. "You talk to Ray for 10 minutes, and it becomes immediately clear where he stands on this: unequivocal and unwavering," said Peter S. Kim, a molecular biologist who was recruited last year to oversee Merck's research and is expected to succeed Dr. Scolnick eventually.

One of Mr. Gilmartin's strengths has been his ability to attract and keep talented managers like Mr. Kim, said Mr. Bowen, the director, adding, "He has the kind of quiet self-confidence that works."

By bringing a balanced approach, he helps his fellow executives stay focused, said Judy C. Lewent, the chief financial officer. "He's very accessible and likes good discussions," she said.

 
In facing the current wave of patent expirations, Mr. Gilmartin had pinned most of his hopes for continued growth on Vioxx and Arcoxia, which compete with Celebrex and Bextra, which are already jointly marketed by Pfizer and Pharmacia. But while Vioxx was expected to reach up to $3.5 billion in sales in 2001, concerns that surfaced last year over possible cardiovascular risks with these drugs dampened demand. Vioxx had sales of $2.6 billion last year, and Merck is projecting that the drug and Arcoxia, which is being sold outside the United States, will account for roughly $3 billion this year. When Merck withdrew its application for Arcoxia, it said it wanted to expand its possible uses, although the company has since said it is also reviewing the drug's risks and effectiveness.

Raymond V. Gilmartin, chief executive of Merck, takes an approach to drug development that is short on flash. But investors have been going for rivals with dazzle.