Merck Taps Davis for CEO Role as Frazier Sets Plan to Retire
(Bloomberg) -- Merck & Co. said Kenneth Frazier plans to retire as chief executive officer after a decade at the helm of the drug giant.
Frazier, one of just four Black CEOs in the Fortune 500, will be succeeded by Robert M. Davis, Merck’s executive vice president for global services and chief financial officer. Davis was unanimously selected by Merck’s board for the post and will also be Merck’s new president as of April 1.
Frazier, who will continue as executive chairman, will step down as chief executive on June 30, the company said in a statement.
“We are making this leadership change secure in the knowledge that Merck has the elements in place for a strong future of scientific innovation and profitable growth,” Frazier, 66, said Thursday on a conference call. “Rob Davis is well prepared and well suited to help Merck capitalize on the many exciting opportunities before it.”
Davis, 54, takes over as the pandemic has roiled health care, hitting Merck’s 2020 sales, and the company’s biggest product faces increasing competition.
The drugmaker issued a stronger-than-expected forecast for the coming year, although fourth-quarter revenue and earnings missed Wall Street expectations. Merck lost as much as 2.3% as of 10:41 a.m. in New York.
The CEO change represents a new leadership chapter for Merck. Longtime research chief Roger Perlmutter retired at the end of last year. He was succeeded by Dean Li, former senior vice president of discovery sciences and translational medicine at Merck Research Laboratories.
Frazier said on Thursday that it was a good time for the leadership transition, “given Merck’s current position of strength.” He said he will stay on as executive chairman for “some period of time.”
A Harvard-trained lawyer, Frazier became CEO at the start of 2011. During his tenure, the Kenilworth, New Jersey-based company has grown its cancer franchise, headlined by the blockbuster immuno-oncology drug Keytruda, and invested in researching and developing new medicines.
Investors have questioned whether the company is too reliant on Keytruda, which brought in about $11.1 billion in sales in 2019, nearly 24% of Merck’s revenue that year. The company has emphasized opportunities for Keytruda in additional forms of the disease along with experimental products like pneumococcal vaccine candidates and the HIV medicine islatravir.
Analysts pressed Merck leadership about its future beyond Keytruda and whether it should retain its animal health business, which Davis said was still an important part of the company. It isn’t yet clear what will be the next therapeutic innovation to shake up the industry, Li said.
“Do I have anything in my pipeline that has reshaped a whole field right now that I can see? I do not,” he said. “I would say that in general the whole pharmaceutical field has not seen something equivalent to Keytruda or pembro at this point in time throughout the industry.”
Merck is also reckoning with financial pain from Covid-19, to the tune of about $2.5 billion overall last year. The company said that its 2021 guidance reflects an expectation that “ongoing residual negative impacts will persist, particularly during the first half of 2021.” Its vaccines business in particular has been slower to recover as students continue virtual schooling, Merck said.
Davis emphasized the company’s performance amid challenges on the Thursday call, saying it had seen 2% year-over-year growth, which would have been about 9% without the effect of the pandemic.
Business development activity remains a priority, Davis said, one of the reasons for holding off on share buybacks. He said Merck prefers smaller deals but isn’t opposed to bigger ones, except large synergy-driven deals.
In late January, Merck discontinued development of its Covid-19 vaccine candidates after disappointing results. It’s focusing on two experimental treatments, MK-4482 and MK-7110, but its forecast doesn’t reflect any potential revenue from them, Davis said.
The outlook does include contributions from Organon, which Merck is set to spin off late in the second quarter. It consists of Merck’s women’s health business, biosimilar unit and a collection of older drugs that no longer have patent protection. Merck said it will update financial estimates if the spinoff happens.
The outgoing CEO Frazier has assumed a national profile in recent years as he spoke out about race and racism. In 2017, after former President Donald Trump commented on racially charged violence in Charlottesville, Virginia, Frazier left a presidential business council. More recently, he’s addressed persistent racial gaps in America as well as at the top of the world’s largest corporations.
In December, Frazier became co-chair of the OneTen initiative, a group pledging $100 million in an effort to hire 1 million Black workers during the next decade. OneTen, which brings together Merck, General Motors Co. and Walmart Inc., among others, will connect employers with recruiters to focus on hiring and training Black workers without four-year college degrees.
“His shoes won’t be easy to fill in so many ways, both within Merck but also including his many principled and valuable contributions to important issues facing society today,” Davis said.
Frazier remained CEO after Merck pulled back a policy in 2018 that would have required him to retire at age 65. The company began its search for a successor that year, focusing on a group of internal candidates.
Davis, who has been with Merck since becoming CFO in 2014, is a veteran of drugmakers Baxter International Inc. and Eli Lilly and Co. A graduate of Northwestern University School of Law and its Kellogg Graduate School of Management, he is director of Duke Energy Corp. and a board member with the global health and humanitarian nonprofit Project Hope.
While planning for Frazier’s succession, the board saw what Davis has contributed to the company and its leadership, said Les Brun, Merck’s lead independent director.
“He is the right person to lead Merck into the future,” Brun said.
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