pany has worked to maintain is lead and to increase its strengths. Merck was willing to cut the work force while profits were still strong, and this was appreciated by Wall Street. Merck's recent acquisition of Medco is a case of vertical integration between the world's largest pharmaceuticals company and the world's largest distributor of pharmaceuticals.
Merck spreads its risk in some cases with joint ventures with some of the other major firms in the industry. Since 1991, Merck has had a joint venture with Du Pont for marketing drugs in the U.S. and Europe. Merck is also noted for a dedication to R&D, a key to much of its success.
The weaknesses of the company include its merger with Medco, seen by many competitors as weakening Merck's position. The company has committed $6 billion to the acquisition at a time when the company's R&D expenditure is facing a shortfall. In the past Merck succeeded with a product pipeline that was always full. Today, efforts to develop new drugs for complex diseases has combined with a reluctance to embrace new research methods through biotechnology to reduce the product flow. In addition, the company has a bureaucracy that has slowed the scientific process even more. Merck had a steady 27 percent growth rate in the late 1980s, and that has now slowed. Health-care cost containment is also threatening growth and profits for the company. Merck has lately started pressuring its researchers to pursue blockbuster drugs and thus has shunned the smaller sales potential of other drugs, while other companies have been very successful with small drugs. Merck is thus saddled with an aging product line and the potential for further reduced sales. The company pledged to keep price increases below the U.S. inflation rate and so cannot use price hikes to make up the difference. Further research efforts have been slowed by the company culture that has developed. The company's labs
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