Merck’s Dick Clark: In His Own Words
3 CommentsBy Ed Silverman // October 21st, 2009 // 7:56 am
A plain-spoken fellow, Merck ceo Dick Clark talks to Fortune about the trials and tribulations of a pharma company. Generally, he’s not very comfortable with the media, so he can come off a bit stiff at times, and so this little exchange smacks of the usual media training. One revealing nugget, however, is that only 40 percent of Schering-Plough’s ‘leadership’ will be absorbed after the merger. Hmm… Nonetheless, here it is…
Fortune: What letter grade would you give pharma right now?
Clark: When it comes to intent and focus, and when it comes to a sense of better transparency, collaboration and better management, I give us a high grade.
Our thought: Well, maybe, but….transparency needs some work. The new registry for physician payments doesn’t list consulting fees. And what do the employees say?
Fortune: Critics say that Big Pharma companies have lost the knack to innovate like they used to. Do you agree? If so, why is this happening?
Clark: I think different companies in our industry are trying different models to accomplish this. It requires an external view, a transparent view, and much more collaboration. We need a very strong, science-based, well-resourced FDA; we need health-care reform; we need intellectual property protection on a global basis; the NIH needs to be resourced correctly; we need better science in our schools. The focus on public health and the ability to make a difference in people’s lives is the core of the pharmaceutical industry.
Our thought: True, but let’s face it, the low-hanging fruit was picked a long time ago.
Fortune: What does Big Pharma do best within this ecosystem, and what does it not do so well?
Clark: The heart and soul of any pharma company is basic research and intellectual capital. The second is in clinical development. Not all good science is created at Merck, we know that. Perhaps 1 percent of it is at our company. We’re much more externally focused than we ever have been. Quite frankly, if you looked at Merck’s scorecard maybe four or five years ago and how we were looked upon in dealing with biotech companies and the outside world and academia, it wouldn’t have been as positive as it is today. Because I think we’ve changed our paradigm, we’ve changed how our scientists are rewarded.
Our thought: How are they rewarded? And how might that relate to greater success? And for now, does that leave Merck as a marketing and financing machine?
Fortune: How will health-care reform impact the pharma industry?
Clark: We support President Obama and what he’s attempting to do with health-care reform. It’s unacceptable to have Americans who don’t have coverage, and they don’t get the care they need. I’m cautiously optimistic that we will have health-care reform this year. Our hope is that the health-care reform continues to support innovation, that it continues to be a market-based approach, and that intellectual property is protected around the world. The next step is to make sure from a preventive and a wellness standpoint that we get ahead of the game, so that we don’t treat just chronic disease in this country.
Our thought: You didn’t answer the question.
Fortune: Do you see a widening of the pharma market with universal insurance coverage, or will reimbursements go down to save costs?
Clark: I think it will be neutral at best or slightly negative, depending on how we participate in discounts and rebates. The industry has signed up for an $80 billion reduction in drug costs over 10 years.
Our thought: Earlier this summer, one analyst estimated the hit would be about 3 percent to 4 percent for the global pharma biz. Legislation hasn’t passed, though.
Fortune: What are the pluses and minuses of the pending Schering-Plough merger, and are you still on track for completing the merger by the end of the year?
Clark: We’re taking two very strong and successful companies and bringing them together. Both companies have a very strong pipeline, and they are complementary from a therapeutic standpoint. From a business standpoint, Schering-Plough is about 70 percent out of the country; we’re more in the U.S. It gives us a more global footprint and diversification. We’re bringing in 40 percent of the Schering-Plough leadership into the company. And we’re still on track to finish the merger by the end of the year.
Our thought: Only 40 percent? And by the way, has the Merck pipeline really been that strong?
Fortune: Critics say Big Pharma is already too big, that it doesn’t have the nimbleness and entrepreneurial spirit of smaller biotech companies. Is bigger necessarily better?
Clark: If you’re bringing two large organizations together and not changing the business model, then bigger is not better. We’re establishing new business units: biologics, vaccines, small molecules, consumer health, and animal health. We’ve built therapeutic franchises horizontally through the company. So I have a general manager at each of the franchises: atherosclerosis and cardiovascular are our top franchises; also vaccines, infectious disease, diabetes. We’re actually running these franchises as separate companies within the larger company. They have to show us where there are gaps in the research so we can build relationships and bring them into the company. So we really are a combination of smaller units rather than one massive organization.
Our thought: A combination is still a combination. A reorganization could have occurred without an acquisition.
Fortune: In 2007, the FDA approved 18 drugs, and in 2008, they approved in the low twenties. What will happen five years from now with these changing models you’re describing to increase the number of approvals?
Clark: We’re going to see another cycle from a productivity standpoint. I’m very optimistic about the industry.
Our thought: Your glass is half full.
Hat tip to Shearlings Got Plowed for pointing out the nugget
Ed
My comments on the four Clark/Fortune quotes at the top of the Oct. 20 Shearlings Got Plowed piece are from the POV of 17 years of one-time corporate-side p.r. experience in the industry. Still, I doubt any of this is novel. (Also, I’m havin’ a lousy day and thought I would pee on the fire.)
As trivial as it may sound, I cannot imagine any Pharma industry CEO actually calling the President anything but Obama. Just plain…Obama. It’s a euphony thing: funny to hear somebody in the C-suite quoted referring to him as President Obama.
If health care reform shakes out as a larger covered patient base and therefore increased net gains in sales and profit — despite some pricing restraint, Dick and other CEOs would be all for it.
Look, if “we don’t (just) treat chronic disease in this country,” then the industry self-bastes. It’s predicated on keeping people on chronic therapies. If, for instance and hypothetically, it discovered some one-time course of therapy that re-routed DNA to prevent coronary artery disease, there would be no need for statins. And without statins, all the players would’ve been hard-pressed to grow EPS in the same way they have since the day the Ph. 3 results for Mevacor were first disclosed. And without that, the industry’s collective ROI would’ve made it far less attractive in comparison to other industries, and so forth and so on.
As for the 40%-60% Merckification controversy, my guess is that’s a very wide-open statement supported by constantly shifting calculus. “Management” could mean a lot of things. And so could the cost of a poison pill, because, after all, management’s stated mission may relate to the best possible return to shareholders, but the reality will show it’s making sure the 300+ boys (and a relatively few number of girls) who happened to make it to the VP lounge walk away with enough money never to worry about it again. Among other things, the cost of deferred comp is beyond imagination.
Condor
Heh — Thanks for the nod, here brother. . . .
Hang tough, as tomorrow both Merck and Schering-Plough report Q3 results, pre-market.
As ever, I’ll live blog any surprises or highlights.
Again, it is simply a treat (like Halloween was — when I was about 11 or so) to have you back, man!
Namaste
Condor
As to high deferred comp — I guarantee you that CEO Hassan, and Ex Comp Committee Chair Hans Becherer, both are able to “imagine” such numbers.
In fact, they weren’t afraid to suggest — in the middle of a (largely-self-inflicted) crisis — that it wasn’t “enough“. About 14 months earlier, in another self inflicted crisis, they did the exact same thing.
Again, great stuff — and, by my lights — feel free to “pee on any fire” you like.
Why else do we go campin’ anyway, if we can pee the occasional campfire right out?
Later, man.