July 30, 2010  Print Email | Merck boss makes $41 billion deal
From skepticism to praise
Posted by Agencies at 05:27 AM GMT on Mar 10, 2009 | NEW YORK (Reuters): Richard Clark was seen as a behind the scenes manufacturing guru who was expected to merely steer Merck & Co Inc through its Vioxx legal woes as its CEO; instead he has emerged as a major dealmaker.
Merck's plan to acquire fellow New Jersey drugmaker Schering-Plough Corp for $41.1 billion is a major strategic shift for a 117-year old company that has boasted a long tradition of avoiding major deals.
"Definitely things have changed. It's pretty remarkable how the company is embracing a large acquisition after rejecting them for years," said Michael Krensavage, principal at Krensavage Asset Management. "It certainly is a significant departure for Merck."
The shift speaks to the state of an industry that became far too big to support limited productivity from bloated research budgets, while facing imminent patent expirations of many of the world's top-selling medicines. Pfizer Inc only weeks ago agreed to buy smaller rival Wyeth for $68 billion.
"The stunning and accelerating changes in the global macro environment are driving stunning and accelerating changes in our own industry's environment," Schering-Plough CEO Fred Hassan said. "Merck came to us at the very time these changes were unfolding."
Clark, who joined the company in 1972 and has said, "I was born and raised at Merck," signaled a softening in the anti-big deal stance in November, when he told a Reuters Health Summit that he was open to buying a biotech company with annual revenue of $5 billion to $10 billion.
While even that statement surprised industry observers, Clark's ultimate target, although not a biotech, proved to be an even bigger fish, with $18.5 billion in revenue last year.
Not a bad birthday present for Clark, who turned 63 on Saturday.
Prior to Monday's news, the biggest deal on his watch was the $4.85 billion agreement to settle thousands of Vioxx personal liability claims from former users of Merck's withdrawn pain drug who suffered heart attacks and strokes.
It was under the cloud of the late 2004 Vioxx withdrawal that the unassuming Clark was called on to replace Chief Executive Raymond Gilmartin, who became the Vioxx fall guy.
Clark was expected by many to be merely a short-term caretaker when he inherited the big chair at Merck in 2005.
Instead, he successfully navigated the company through the Vioxx legal morass, oversaw the launch of several important new medicines and, through deft cost cutting, helped put Merck on far more stable footing than it was when it was reeling from the loss Vioxx, a $2.5 billion a year drug.
"He wasn't a drug guy and I think he shocked a lot of people," said Trevor Polischuk, global pharmaceutical analyst for OrbiMed Advisors.
His background was in manufacturing and operations, his mantra: Six Sigma -- a system to lower costs and improve efficiency that has been widely used at companies such as General Electric Co.
"I think we're getting some of our swagger back as a company," Clark, not one known to swagger, declared last November, although stopping short of declaring victory.
Industry analysts believe Clark is the right person to lead the larger Merck with double the number of drugs in late stage development in the combined pipeline.
"The fact that he's been able to grow or maintain earnings through two big patent expirations with Zocor and Fosamax is really impressive, and I think he is absolutely the one to move forward with Schering-Plough in the mix," Polischuk said.
"When he came into the job there was a lot of skepticism that he was the person to take over, but he really showed his mettle," Polischuk said.
"I think he could do as good a job as anybody," Krensavage agreed. "He has done a very good job of cutting costs. He runs Merck very efficiently."
With just two years left before mandatory retirement age, Clark could view this deal as a crowning achievement and ride off into the sunset. That does not appear to be in the cards.
"I know he thinks the company is extremely undervalued and I think he wants to be the person to hand it off in much better shape," Polischuk said.
"He has had success; he knows how to do it."
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