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DJ Merck's Kenneth Frazier to Retire as CEO at End of June -- 3rd Update

· 02/04/2021 16:44
By Jared S. Hopkins

Merck & Co. said Kenneth Frazier, its chairman and chief executive, is retiring as CEO at the end of June.

The Kenilworth, N.J., drugmaker said Thursday that Robert Davis, currently executive vice president of global services and chief financial officer, will succeed Mr. Frazier in the top job on July 1.

"It has been a distinct honor and privilege to serve this great company as its CEO over the past decade," Mr. Frazier, 66 years old, said on the company's earnings call Thursday.

Under Mr. Frazier's leadership, Merck became a leader in the emerging field of cancer immunotherapy and in the development of the drug Keytruda, now one of its top sellers. The therapy, which treats lung and other cancers, totaled more than $14 billion in global sales last year.

Keytruda's success has lifted Merck's market capitalization to a record high $234 billion last year but has come down slightly. Since the company released positive study results for Keytruda in April 2018, Merck shares are up more than 35%, compared with the S&P 500's nearly 48% gain.

Mr. Frazier, a lawyer who has led Merck since 2011, is among the few Black CEOs at S&P 500 companies and has been a leading industry voice in recent years encouraging companies to hire more Black employees. He has also steered Merck through criticism from politicians and patients about how the industry prices its medications.

Mr. Frazier's exit was anticipated after the board allowed him to remain CEO three years ago, waiving the requirement that the company's chief retire at 65.

Merck's board considered internal and external candidates, but the finalists were all Merck executives: Mr. Davis, Mike Nally, chief marketing officer, and Frank Clyburn, chief commercial officer, according to people familiar with the matter.

Just four of the chief executives of America's top 500 companies -- or 1% -- are Black, including Mr. Frazier. The others are Marvin Ellison of big-box hardware store Lowe's Cos., Roger Ferguson Jr. of the financial-services firm Teachers Insurance and Annuity Association of America and René Jones, who runs M&T Bank in New York. When Rosalind Brewer takes the helm in March of Walgreens Boots Alliance Inc., the number will rise briefly to five, as TIAA's Mr. Ferguson is set to retire at the end of the month.

Despite Keytruda's success, some investors and analysts have worried that Merck's growth might depend on the therapy too heavily. The drugmaker has done deals for small companies to augment its pipeline in the past couple of years, and it plans to spin off some slow-growth legacy products.

The selection of Mr. Davis, 54, likely signals intensified business development to reduce the company's dependency on Keytruda, according to a Thursday note from Citigroup Inc. analyst Andrew Baum. Keytruda sales made up nearly one-third of the company's approximate $48 billion in revenue last year, Merck said Thursday.

Still, Mr. Davis's elevation suggests Merck's overall strategy is likely to remain steady in the short term, said Seamus Fernandez, an analyst at Guggenheim Securities LLC, although he added that "part of me wonders if this is a way to speed up and accelerate decision-making" for deals.

A graduate of Harvard Law School, Mr. Frazier worked at law firm Drinker Biddle & Reath before joining Merck in 1992. He became general counsel in 1999 and defended Merck from allegations that its top-selling painkiller Vioxx increased the risk of heart attacks and strokes. Merck agreed in 2007 to pay $4.85 billion to settle thousands of claims.

Issues of race and the workplace have been important to Mr. Frazier, who last month helped start a nonprofit organization with other CEOs to connect employers with Black workers.

He has also taken on delicate, sometimes controversial topics during his tenure atop Merck, ranging from drug pricing to former President Donald Trump. Mr. Frazier stepped down from a White House business committee in 2017, calling his decision a matter of conscience after Mr. Trump blamed both sides for deadly clashes between white supremacists and counterprotesters in Charlottesville, Va.

One of Mr. Frazier's key moves early on was bringing back Roger Perlmutter to Merck in 2013 to lead its R&D. Dr. Perlmutter has since been credited with reviving the company's labs after several setbacks.

Dr. Perlmutter retired in December, turning the research reins over to Dean Li.

Keytruda's patent protection is set to expire by the end of 2028, and the focus will be on Merck's pipeline and potential deals to spur growth, analysts say.

Merck's roster of experimental drugs include vaccines, including a potential competitor to Pfizer Inc.'s big-selling Prevnar vaccine, which protects against infections such as pneumonia and meningitis. The vaccine could fetch at least $1 billion, according to analyst Gregg Gilbert of Truist Securities Inc.

Merck also is developing treatments for HIV/AIDS and oncology. Two experimental Covid-19 drugs could drive short-term sales with results expected soon, according to analysts.

Merck said Mr. Davis, who joined the company as CFO in 2014, will become president on April 1, at which time the drugmaker's four operating divisions will begin reporting to him. Before joining Merck Mr. Davis held roles at Baxter International Inc. and Eli Lilly & Co.

Mr. Davis is joining a small group of chief financial officers who ascended to the top spot. Around 6% CFOs have been promoted to chief executive officers at companies in the S&P 500 and Fortune 500 in recent years, according to the Crist|Kolder Volatility Report. The most common path is an internal promotion from the role of chief operating officer.

In reporting fourth-quarter earnings Thursday, Merck said it expects total revenue this year of between $51.8 billion and $53.8 billion and adjusted earnings of $6.48 to $6.68 a share.

Analysts had been forecasting revenue of $51.66 billion and an adjusted profit of $6.30 a share.

Merck's quarterly revenue of $12.5 billion was up 5% from $11.9 billion in the year-earlier quarter, as Keytruda sales rose nearly one-third to around $4 billion. Analysts surveyed by FactSet were expecting revenue of $12.67 billion in the latest period.

--Lynn Cook and Nina Trentmann contributed to this article.

Write to Jared S. Hopkins at jared.hopkins@wsj.com

(END) Dow Jones Newswires

February 04, 2021 16:44 ET (21:44 GMT)

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