Germany's Merck Faces Dilemma
With U.S. Branding

VANESSA FUHRMANS / Wall Street Journal 3may2001

DARMSTADT, Germany — As corporate brands go, the name Merck packs considerable punch: It's the most recognized company name in the pharmaceuticals business, according to U.S. market-research firm Scott-Levin. Merck routinely makes Fortune Magazine's 25 most-admired companies list. In a flash, the name is synonymous with a drug maker with billions in sales, a stable of blockbusters and world-class research labs.

That's great news for Merck & Co., the U.S. pharmaceuticals giant most people think of when they hear the name.

But for Merck KGaA, the smaller, lesser known German original born out of a Darmstadt pharmacy in 1668, such brand power isn't always so good. Around the world, it's often mistaken for the larger U.S. Merck, to which it no longer has ties. Once upon a time, it did. In fact, the U.S. company used to be a unit of Germany's Merck but was confiscated during World War I and re-established as an independent company. Now, in the U.S., a legal accord actually prevents Germany's Merck from using the Merck name.

For decades, Germany's Merck sidestepped its branding conundrum by letting most of its foreign subsidiaries operate under other names and by playing only a bit role in the U.S. drug market. But under its new chief executive, Bernhard Scheuble, the company is gearing up for an ambitious push into the U.S., building up new cancer research and development activities there and creating its own U.S. sales and marketing force.

In fact, Merck says it could announce its first U.S. licensing deal — to market another company's oncology drug that's in the third and final phase of clinical trials — as early as this week. By the end of this year, the company hopes to have signed one to three more marketing agreements, enough to generate between $500 million and $1.5 billion (560.6 million euros and 1.68 billion euros) in annual sales, says its U.S. chief, Matthew Emmens.

The move is pushing Merck to rethink its U.S. branding strategy as well as its corporate identity world-wide. One reason is obvious: It needs a name to tell partners, doctors and even patients, and a brand upon which to build a reputation.

Merck's search for a U.S. name also underscores the growing importance of corporate brands in the drug industry. As U.S. and European equity cultures grow stronger, consumers are becoming more aware not just of hot-selling drugs, but the companies behind them. And for many companies, rebranding has become an essential part of executing major strategy shifts or mergers, such as with Aventis SA, the company created from the merger of Hoechst AG and Rhone Poulenc SA.

"It used to be that a company would develop a business strategy and then the brand," says Christian Schroeder of Lanador Associates, an international brand consultancy and unit of WPP Group that Merck hired late last year. "Now, more and more, the brand is part of the business strategy."

The rebranding project's biggest result so far: Merck's fledgling U.S. business will remain EMD Pharmaceuticals — short for E. Merck Darmstadt, and the preliminary name of Merck's U.S. headquarters in Raleigh, North Carolina. But the company hasn't yet decided whether to incorporate the name into all its other U.S. operations. World-wide, it plans to integrate the Merck name into many of its units. With Landor, the company also is designing an emblem that will be incorporated into the Merck and EMD logos in the hopes of unifying the brands. The final result will be unveiled at Merck's September management meeting in Chicago.

Brand overhauls are nothing new to the pharmaceutical business, especially as megamergers continue to roil the industry. Novartis AG sprang from the union of Ciba-Geigy AG and Sandoz AG. Pharmacia Corp. dropped Upjohn from its name after acquiring Monsanto Co. last year.

But Merck's complicated past and deep family roots add a few extra wrinkles to its branding odyssey. In 1827, Emanuel Merck began Merck's transformation from family store to a mass maker of alkaloids, plant extracts and other chemicals. By the turn of the century, the company had compound sales and production sites in London, New York and elsewhere.

During World War I, though, nearly all of its foreign operations were confiscated. Merck & Co., its U.S. subsidiary, was re-established as a fully independent company. (The historical figure who looms largest in Merck & Co.'s history is George Merck, the second son of Emanuel who helped run the U.S. business before and after it was confiscated. "We're very proud of our German tradition," says a Merck & Co. spokeswoman.)

Germany's Merck regrouped after the war and expanded through the rest of the century as a manufacturer of drugs, particularly diabetes treatments, and specialty chemicals, such as liquid crystals for electronic displays. But the company remained completely family owned until 1995, when, in Germany's then-largest public offering ever, it sold 26% of its stock in an initial offering for $1.2 billion.

"One of our most valuable assets is our brand name — it is, after all, 333 years old," says the 47-year-old Mr. Scheuble. He is the first chief executive not to hail from the Merck family, which still owns the majority of the company. "But there's more and more of a mix-up as time goes on — because of new acquisitions, the Internet, etc. — not just outside the company, but inside, too."

In short, the Merck name is a mixed bag of coattails and confusion. Mr. Scheuble jokes that he's often offered Merck & Co. corporate rates when renting a car in the U.S. Less amusing is a Yahoo! Inc. Web site showing the German Merck's 2000 earnings, complete with the U.S. Merck logo, or the occasional investment bankers' presentation confusing the two. More recently, company officials were surprised by a flood of letters congratulating it on Merck & Co.'s initiative to slash AIDS drug prices. (AIDS drugs aren't even part of the German Merck's product line.)

"The basic story is: We want to use our brand value, but we don't want to give the impression we're along for a piggyback ride," Mr. Scheuble says.

Even if the company wanted to, insiders say the Merck family's influence rules out any complete corporate name change. When Landor listed the possibility of a new name as one of the options in a preliminary presentation in January, Mr. Scheuble just laughed and asked about the next idea. "We knew it had to be shown as one of all the possibilities, but there was no discussion," says a Merck official at the meeting. "It lasted about 30 seconds."

Another idea immediately nixed was a variation on the Merck name in the U.S., such as E.Merck, which is the German parent company's official name. "Legally, there's just no way to introduce the name Merck in the U.S.," says Merck spokesman Hartmut Vennen.

That left the company with a twin-name strategy: the Merck brand world-wide, but another name, EMD, for its flagship pharmaceuticals activities in the U.S. The company hasn't yet decided whether EMD will become an umbrella brand for all its activities in the U.S., such as California-based Dey Laboratories, specialty chemicals maker EM Chemicals or Lexigen Pharmaceuticals, a Massachusetts-based drug discovery company specializing in cancer treatments and vaccines.

By early September, EMD hopes to have snared one or more marketing deals in the U.S. Though a handful of Merck drugs, such as its diabetes treatment Glucophage and heart-failure drug Coancor, have significant sales in the U.S., other companies such as Bristol-Myers Squibb Co. and American Home Products Corp. hold the marketing rights. Eventually Merck plans to market its own products, particularly in oncology and metabolism, in the U.S., too.

"With EMD, we'll still be able to use a name that gets back to what Emanuel Merck was all about," says Mr. Emmens. "We never wanted to give that up."