Merck New CEO Frazier Vows Innovation, Wider Markets

Kenneth C. Frazier Elected Merck & Co. CEO
Kenneth C. Frazier, elected by Merck & Co Inc. board of directors as chief executive officer and president, as well as a member of the board, effective Jan. 1, 2011. Photographer: Michael Lund/Merck & Co Inc. via Bloomberg

Merck & Co.’s Kenneth C. Frazier, named today as chief executive officer of the second-biggest U.S. drugmaker, vowed to develop innovative products and increase sales in emerging markets in his new post.

“The pillar of our strategy will remain innovation,” Frazier, 55, said in a telephone interview today after the company announced he will replace Richard Clark, 64, as CEO. “Emerging markets is a subset of that innovation strategy.”

Frazier takes over a company in transition. Merck is eliminating 15,000 jobs and closing facilities following last year’s $49 billion acquisition of Schering-Plough Corp. It’s also focusing efforts on costly research that may pay off later as breakthrough treatments for heart disease and cancer and on a strategy to sell its newest drugs in developing countries, said Christopher Bowe, a New York-based analyst for London research firm Informa Plc.

“They are making it known that the core of their business model is to continue to be the high-risk, high-reward science,” Bowe said in a telephone interview. “That’s clearly not the case with other companies.”

Frazier has been president of Whitehouse Station, New Jersey-based Merck since April after joining the company in 1992 as general counsel. He made his name at Merck leading the company’s legal defense against thousands of claims that its Vioxx painkiller drug caused heart attacks and strokes.

Frazier’s Compensation

As Merck’s CEO, Frazier is eligible for 2011 compensation of as much as $11.25 million in cash and stock, which includes base salary of $1.5 million, a bonus of as much as $2.25 million, and an incentive equity package of $7.5 million, the company said today in a regulatory filing.

Merck’s shares fell 22 cents to $34.47 at 4 p.m. in New York Stock Exchange composite trading. Clark, who joined the company in 1972 as quality control inspector and has been CEO since 2005, was due to step down next year under Merck’s mandatory retirement policy.

Merck bought Schering-Plough to add new products and expand into emerging markets as it faces generic competition to medicines with more than $8 billion in annual sales by 2013. The company has experimental drugs in the final stages of testing to fight hepatitis, reduce cholesterol and prevent blood clots.

New Consumers

Emerging markets, led by investments in China and Brazil, offer drug companies a way to increase sales of medicines after their patents expire. Merck aims to sell its newest, more expensive drugs to burgeoning middle and upper classes in those countries, Frazier said. Sales of Merck’s Januvia, a diabetes pill approved in the U.S. in 2006, surged 28 percent in the third quarter this year to $847 million, bolstered by sales in the Asia Pacific region, Frazier said.

“It shows that no matter where you are, people value innovation,” he said.

Frazier’s Merck may also reap the benefits of a decade of research in cardiovascular disease. The company has four cardiovascular treatments in final testing that each have the potential for at least $1 billion in yearly sales by 2016, according to Robert Hazlett, an analyst at BMO Capital Markets in New York.

Frazier’s rise at Merck belies his unassuming roots. His mother died when he was 12, leaving his father, a janitor at United Postal Service, to raise three children alone in a North Philadelphia neighborhood. In college, he sold tadpoles and newts to a local aquarium store to make pocket money.

He is married with two children and volunteers for organizations that serve the underprivileged. In the late 1990s, he helped run the Cornerstone Christian Academy, an inner-city Philadelphia school that was racked with financial trouble and staff turnover.

Penn State Graduate

Frazier is a graduate of Penn State University in University Park, Pennsylvania and Harvard Law School in Cambridge, Massachusetts, where he graduated two years ahead of Jeffrey Kindler, the CEO of Pfizer Inc., the world’s biggest drugmaker.

Frazier described the Vioxx case as “the most significant challenge I’ve ever faced,” in a 2004 interview with Bloomberg BusinessWeek.

Merck withdrew the Vioxx painkiller from the market in 2004 when a study showed the drug doubled the risk of heart attacks and strokes. Last month, the company set aside $950 million to resolve a criminal probe, raising potential legal costs from Vioxx to $7.7 billion. Estimates for potential legal costs at the time of the first cases ran as high as $18 billion.

‘Obvious Choice’

“Ken’s being the savior of the company by leading the Vioxx defense strategy plays a lot into” his promotion, said Informa’s Bowe, who was an adviser to Schering-Plough Corp. CEO Fred Hassan before the sale to Merck. “Merck’s self image is really important inside the company. Ken was the obvious choice.”

Frazier also served as executive vice president and president of global human health for Merck from 2007 to 2010. Clark will advise Frazier during the transition, the company said.

Prior to joining Merck, Frazier was involved in other high profile cases.

In 1991, as a partner at Philadelphia law firm Drinker Biddle & Reath LLP, Frazier and two colleagues took on the case of James Willie “Bo” Cochran, an Alabama man on death row for allegedly committing a 1976 murder. Frazier and his team, working on a pro bono basis for a man they believed innocent, won a new trial for Cochran, who was acquitted in 1997.

While Frazier’s legal experience is extensive, his experience running the operations of a company is limited and may cause doubt for some investors, Informa’s Bowe said.

“Does leading a big pharma company in a very challenging and changing environment require more operational experience?” Bowe said. “That’s the question.”

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