Corante

About this Author
DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

Chemistry and Drug Data: Drugbank
Emolecules
ChemSpider
Chempedia Lab
Synthetic Pages
Organic Chemistry Portal
PubChem
Not Voodoo
DailyMed
Druglib
Clinicaltrials.gov

Chemistry and Pharma Blogs:
Org Prep Daily
The Haystack
Kilomentor
A New Merck, Reviewed
Liberal Arts Chemistry
Electron Pusher
All Things Metathesis
C&E News Blogs
Chemiotics II
Chemical Space
Noel O'Blog
In Vivo Blog
Terra Sigilatta
BBSRC/Douglas Kell
ChemBark
Realizations in Biostatistics
Chemjobber
Pharmalot
ChemSpider Blog
Pharmagossip
Med-Chemist
Organic Chem - Education & Industry
Pharma Strategy Blog
No Name No Slogan
Practical Fragments
SimBioSys
The Curious Wavefunction
Natural Product Man
Fragment Literature
Chemistry World Blog
Synthetic Nature
Chemistry Blog
Synthesizing Ideas
Business|Bytes|Genes|Molecules
Eye on FDA
Chemical Forums
Depth-First
Symyx Blog
Sceptical Chymist
Lamentations on Chemistry
Computational Organic Chemistry
Mining Drugs
Henry Rzepa


Science Blogs and News:
Bad Science
The Loom
Uncertain Principles
Fierce Biotech
Blogs for Industry
Omics! Omics!
Young Female Scientist
Notional Slurry
Nobel Intent
SciTech Daily
Science Blog
FuturePundit
Aetiology
Gene Expression (I)
Gene Expression (II)
Sciencebase
Pharyngula
Adventures in Ethics and Science
Transterrestrial Musings
Slashdot Science
Cosmic Variance
Biology News Net


Medical Blogs
DB's Medical Rants
Science-Based Medicine
GruntDoc
Respectful Insolence
Diabetes Mine


Economics and Business
Marginal Revolution
The Volokh Conspiracy
Knowledge Problem


Politics / Current Events
Virginia Postrel
Instapundit
Belmont Club
Mickey Kaus


Belles Lettres
Uncouth Reflections
Arts and Letters Daily
In the Pipeline: Don't miss Derek Lowe's excellent commentary on drug discovery and the pharma industry in general at In the Pipeline

In the Pipeline

« Pfizer's CEO Speaks | Main | Fragments Versus DOS: A Showdown »

February 4, 2011

Merck's Strategy vs. Pfizer's

Email This Entry

Posted by Derek

Here's an interesting contrast after all the Pfizer discussion here over the last few days. Merck's CEO, Ken Frazier, has actually pulled the firm's earnings-per-share guidance, saying that the recent trouble with vorapaxar and regulatory concerns in general make it impossible to say for certain what EPS growth will be. He also says that he'd rather have a freer hand to pay for both sales and research, in the interest of long-term growth.

Not everyone's buying it:

Analysts on Merck’s conference call were skeptical about the reasoning behind the guidance change. Catherine Arnold of Credit Suisse, who called the change “befuddling” in her note to investors, told Frazier that investors expected Merck to “share the pain” of shareholders and noted that vorapaxar, launching in 2012, should have been a “drag on earnings, not a positive.” Frazier replied that Merck’s cost-cutting efforts were ahead of schedule, but that he was faced with a decision to either withdraw guidance or commit to cutting projects that could make money in the future. He also argued that because Merck’s sales reps already visit cardiologists to sell heart drugs, selling vorapaxar, too, would not cost much more.

Well, if he's sincere in this, I have to salute the guy. I don't think that the Schering-Plough merger was a good thing, and Merck has certainly laid off people and disrupted a lot of things because of it. But if they're not going to pull a Pfizer - which I will define for now as "Keep cutting to make the numbers, and when you can't do that any more, then go out and buy someone else who has things to sell and then cut them" - then good for Merck. This topic came up explicitly during the earnings conference call:

Jami Rubin - Goldman Sachs Group Inc.: More of a strategic question. Just given the setback that you've faced with vorapaxar, I'm just wondering if you can provide us with your view of the research model going forward? I mean, might it make sense for some of these the very large, very expensive, very risky outcomes trial such as vorapaxar, how do you buffer these trials? I mean, might it have made sense to isolate some of these subgroups before pursuing a large trial, and I know that it's obviously what's happening with anacetrapib. Maybe if you could talk just in terms of how you see the R&D spend going forward. Also, it's interesting that yesterday or the day before Pfizer announced a significant cut to its R&D. And I'm just wondering if you can talk about your R&D spend going forward, and if you see opportunities to really rethink that budget and to improve the R&D output. . .

Kenneth Frazier You asked some very typical questions in that set of questions. Let me start with vorapaxar. So I assume that what you're essentially asking is in hindsight, could we have done two separate trials. One in the ACF population, one with essentially the prevention population. I can't comment on the trial design. It was so long ago, but what I can say is that as we, as a committee with Peter and Adam and Peter Kellogg and myself, what we do regularly in the company is try to assess all the programs that we're relying on. We try to look at them from a science and technical and medical standpoint. We also try to look at them from a commercial standpoint. So we try to engage each program one by one, in addition to having the kinds of tough metrics we have in place around ROI and value creation in the pipeline. What I would also say is that we recognize that our strategy comes with it a certain amount of complexity, lengthiness and unpredictability because we are seeking innovative medically important therapies. And with vorapaxar, we know the risk of trying new mechanisms and approaches. I still continue to have optimism because the DSMB continued in 2P, we will see what the data shows. If the data shows a benefit to that population, this could still be a very important drug going forward.

On the Pfizer question, obviously, I can't comment on anyone else's view of their particular pipeline or the investment requirements that they face at this time. But I will tell you that we are mindful of the need to drive productivity, greater productivity in our R&D program. Peter Kim and his colleagues understands that we are focused on it. We are trying to take cost out. We're trying to increase the probability of success as we go forward. But as a company, I think we are saying that we are committed to innovation as a strategy, and we believe that over the long term it will pay off. And if you'll indulge me one minute, last week I attended the funeral of John Horan, who was the CEO of Merck a number of years ago before Roy Vagelos. One of the things he was proud us of was that he kept the focus on research during a fallow period for Merck Research in the 70s, and that's exactly what led to a state of innovation that has made the modern-day Merck. So I am not blind to what investors want us to do. They want us to invest in prudent ways and ways that actually drive ROI and productivity. But we, as a company, believe that the only sustainable strategy in the health care environment that we're in is real innovation that makes the difference to patients and payers. . .

As I said above, I can disagree with some of the ways that Merck is trying to run its R&D business, not that they're asking for advice from me. But it at least appears as if their heart - and their head - might be in the right place. Or they at least want to make it appear as if they're in the right place. And that they're willing to tick off some Wall St. analysts in order to be seen to be doing that. Which should count for something - you'd think.

Comments (37) + TrackBacks (0) | Category: Business and Markets | Drug Industry History


COMMENTS

1. NHR_GUY on February 4, 2011 10:02 AM writes...

FIRST!!!!
May the best man win.
I put my money on Merck. If you are a pharmaceutical company then you make money and win by investing in the things that make pharmaceuticals i.e. research. Pfizer seems to think otherwise. Either that or they are trying to get out of the pharmaceutical business.
Five years from now, one company will look prescient and the other will look foolish and shortsighted. Which category do you think Pfizer will fall in?

Permalink to Comment

2. Anonymous on February 4, 2011 10:22 AM writes...

Having worked at Merck for many years, this was the first time in a long time that I felt a sense of pride to work at Merck. The analyst call was something else - they were audibly upset with Ken but he held his ground and defending investments in R&D. Not bad for a lawyer. I have heard anecdotally that Ken remains very close with former CEO Roy Vagelos (who originally hired him) and that he will be far more like Roy than the previous two CEOs. I was skeptical when I originally heard this but after yesterday's conference I'm not sure it isn't true.

Permalink to Comment

3. Anonymous on February 4, 2011 10:23 AM writes...

Having worked at Merck for many years, this was the first time in a long time that I felt a sense of pride to work at Merck. The analyst call was something else - they were audibly upset with Ken but he held his ground and defending investments in R&D. Not bad for a lawyer. I have heard anecdotally that Ken remains very close with former CEO Roy Vagelos (who originally hired him) and that he will be far more like Roy than the previous two CEOs. I was skeptical when I originally heard this but after yesterday's conference I'm not sure it isn't true.

Permalink to Comment

4. Mike G on February 4, 2011 11:27 AM writes...

This bit "Peter Kim and his colleagues understands that we are focused on it. We are trying to take cost out" -- makes me think that, yes, Merck is committed to R&D innovation, but they are also thinking of ways to alter the economics of achieving it. I think "take the costs out" is code for more outsourcing.

Permalink to Comment

5. Charley's Angle on February 4, 2011 12:22 PM writes...

A breathe of fresh air after Pfizer's apparent 'maintain EPS above all else' strategy. It still astonishes me that a company which claims to be in R&D sees more value in embarking upon an $XBn Share buy back, than reinvesting that money elsewhere. One presumes that by keeping 'The Street' happy, they'll be better able to raise capital for future large scale acquisitions. Either way, they apparently have limited faith in their own engine, or even the need to have an engine. I'd be interested to hear
arguments to the contrary.

I'm sure I echo the sentiments of many when I say I hope innovation rather than bare knuckle economics wins the day.

Permalink to Comment

6. lynn on February 4, 2011 12:26 PM writes...

I'm in the same boat as #2 - ex-Merck, and the first time in long time I'm seeing some of the old Merck spirit here in Frazier. The Horan-Vagelos days were good ones, where management did take the long view. Here's hoping Frazier means what he said - and is not so ruled by the analysts' complaints.

Permalink to Comment

7. passionlessDrone on February 4, 2011 1:20 PM writes...

Hello friends -

The comment from the analyst from Goldman Sachs was enlightening to me; in the first case, I'm pretty sure that the analyst in question hasn't been reading this blog. Perhaps I should hang up my shingle as an advisor on what to do with regarding investing in pharma:

"Sell everyone short a little bit at a time and you'll do better than trying to figure out which companies pipeline will come through with a blockbuster."

I mean, might it have made sense to isolate some of these subgroups before pursuing a large trial, and I know that it's obviously what's happening with anacetrapib. Maybe if you could talk just in terms of how you see the R&D spend going forward.

Doesn't part of the correct answer to this question involve something along the lines of "The quarterly results driven market fundamentally misuderstandings the complexity of the problems we are trying to solve, the degree to which our knowledge of the remaining targets are nascent, and the costs associated with this type of research; and yet, we find ourselves beholden to this lack of knowledge. So choices were made. As someone responsible for advising one of the largest financial institutions on the planet, you ought to fucking know that a question this broad on a set of varied drug candidates is meaningless, asshat." (?)

- pD

Permalink to Comment

8. Anon1 on February 4, 2011 1:23 PM writes...

#2 and #6: Day dreaming?

The "old Merck", where scientific spends were not well controlled, and staff liberally allowed to delve into all sorts of speculative adventures, cannot be supported any longer, even with a "vision" to the future. There is nothing about Merck's past culture that makes it likely to have greater success by revisiting this past culture.

And folks, don't delude yourselves. Frazier may be a very smart, clever person, but he's not a born & bred scientist as was Vagelos. With "big" strategic decisions, Merck under RV was very top-down driven by people who knew and understood the science. Frazier's background does not provide this instinctive scientific prowess. Vagelos at Merck was one-of-a-kind.

Permalink to Comment

9. Matthew Herper on February 4, 2011 1:31 PM writes...

Worth noting: by any measure, Merck's labs have been far more productive than Pfizer's.

Permalink to Comment

10. Charley's Angle on February 4, 2011 1:42 PM writes...

#8

"…staff liberally allowed to delve into all sorts of speculative adventures... There is nothing about Merck's past culture that makes it likely to have greater success by revisiting this past culture"
Really? I understand the need for checks and balances and appreciate this is an area which academia is well placed to support, but taking away scientists ability to go 'off piste' reduces their own professional engagement levels (which is acknowledged as being one of the single biggest predictors of performance), but also stifles serendipity, or in other words, the discovery in Discovery.

Permalink to Comment

11. lynn on February 4, 2011 2:34 PM writes...

#8 - I disagree. Where do you think the drugs from those days came from? Certainly not due to ideas sprinkled down from above - enalapril, mevacor/zocor, primaxin, cefoxitin were from-the-bench projects, championed all the way up the development line by one or a few scientists/ inventers. Bench work on early stage ideas-turned-to projects with buy-in from biologists and chemists working together is, in the greater scheme of things, CHEAP. True of newer in-house stuff at Merck, too, such as cancidas, gardasil, januvia, isentress. It's clinical trials that are expensive. IMHO

Permalink to Comment

12. anchor on February 4, 2011 3:23 PM writes...

Mr. Frazier, we all know Dr. Roy Vagelos. Dr. Vagelos is a friend of ours and Mr. Frazier you are no Dr. Roy Vagelos. Science is a key driver for a pharmaceutical company and as long as they are still holding on to trashy Dr. Peter Kim, nothing meaning will be accomplished, period.

Permalink to Comment

13. Anonymous on February 4, 2011 3:23 PM writes...

After lauding Ken Frazier for acknowledging that innovation drives value for investors, there should have been a follow-up question: "What evidence is there that Peter Kim is adequate to oversee that enhanced focus?". ANY data to that end would be of interest to many people. Thus far, he has shown an astonishing ability to bet wrong and to eliminate anyone who disagrees with his view.

Permalink to Comment

14. barry on February 4, 2011 3:37 PM writes...

re #11
the Mevacor/mevinolin/HMGCoAreductase project came to Merck with Vagelos when they seduced him from academia. That's as top-down as it gets. The top just happened to be a real scientist in that case.

Permalink to Comment

15. Anonymous on February 4, 2011 3:39 PM writes...

Agree with comments on Peter Kim. However, Frazier has been on the job all of 1 month. For all we know, he's looking for Peter's successor as we speak.

Permalink to Comment

16. HelicalZz on February 4, 2011 4:09 PM writes...

I think Merck is withholding guidance because it would signal the Remicade decision / agreement. Simple as that.

Zz

Permalink to Comment

17. Anonymous on February 4, 2011 4:34 PM writes...

#16 - if you're suggesting Merck execs know the outcome of the arbitration case and are withholding that from shareholders, I believe that is illegal. They did specifically comment that they are not re-issuing guidance at this time due to several upcoming events that may influence what the guidance is. Clearly the outcome of the Remicade dispute is one of these. Doesn't change the fact that they are guiding lower (either way) and rather than cut R&D spend to meet previous guidance, they opted to withdraw guidance and piss off Wall St. You have to find this admirable in this day and age.

Permalink to Comment

18. Anonymous on February 4, 2011 5:55 PM writes...

@14 You're right, of course, barry. How could I forget that? Vagelos certainly brought the concept with him. I guess I was most aware of the conduct of the work, led by Al Alberts, who I believe came with Vagelos from Washington U, led the research from the earliest screening of natural products. But, as you say, Vagelos was a scientist. Although, he was President of MSDRL at the time of discovery and development - and Horan was CEO.

Permalink to Comment

19. lynn on February 4, 2011 5:59 PM writes...

oops - #18 is me. I do wonder about Kim's future at Merck. He sure isn't a Vagelos. He's not even a Scolnick.

Permalink to Comment

20. AKS on February 4, 2011 7:53 PM writes...

Might be interesting to consider Eli Lilly here too. Their strategy seems to be even more extreme towards "investment in research will carry us through; no big mergers (although some layoffs)". And their patent cliff and string of recent failures arguably imperils them more than Merck or Pfizer. So I guess you could argue that their CEO has some balls to be able to stand up to the wall street analysts, etc. at the earnings calls and say essentially "we're in this for the long term". Although in Lilly's case, maybe it isn't a sign of strength or faith in their research (which arguably hasn't produced much recently) but rather a lack of any other better options. What do you think?

Permalink to Comment

21. AKS on February 4, 2011 7:54 PM writes...

Might be interesting to consider Eli Lilly here too. Their strategy seems to be even more extreme towards "investment in research will carry us through; no big mergers (although some layoffs)". And their patent cliff and string of recent failures arguably imperils them more than Merck or Pfizer. So I guess you could argue that their CEO has some balls to be able to stand up to the wall street analysts, etc. at the earnings calls and say essentially "we're in this for the long term". Although in Lilly's case, maybe it isn't a sign of strength or faith in their research (which arguably hasn't produced much recently) but rather a lack of any other better options. What do you think?

Permalink to Comment

22. AnonToo on February 5, 2011 5:54 AM writes...

If you have a look at top-line revenue, it is clear that sales at Merck and at other big Pharma are essentially driven by branded non-generic pharmaceuticals. The animal health and consumer care account for ~10% of total sales. These business are all addicted to innovative non-generic medicines. Unless you want to turn into Procter&Gamble or Teva and take the hit on margins, R&D is a critical spend. This is what I think Frazier is getting at. If you want to be on the high margin end of the business, you will have to spend and risk money on R&D.

Permalink to Comment

23. AnonToo on February 5, 2011 6:18 AM writes...

Oh, and as for outsourcing discovery - the problem is that most of the R&D spend comes in development. The few solid prospects that exist in biotech (i.e. with PhII POC) tend to be bid up to very high levels, making the occasional PhIII failures much more expensive. An external focus is useful throughout discovery and development, but I feel that your due diligence is enhanced by tapping into the internal R&D expertise.

Permalink to Comment

24. drug_hunter on February 5, 2011 6:47 AM writes...

The interesting thing is that Merck actually has a very long history of innovation and of trying to do the right thing. Back in the 1980s new Merck employees were frequently reminded of the great quote from George Merck (1950):

"We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear. The better we have remembered it, the larger they have been."

If Ken Frazier is heading back in that direction -- more power to him!

Permalink to Comment

25. HK on February 5, 2011 12:58 PM writes...

Off-topic interjection: I love this blog. Thank you for everyone who has posted so far. This conversation has been incredibly interesting and informative.

Permalink to Comment

26. Charles on February 5, 2011 3:23 PM writes...

I'm curious as to what this audience thinks of Pfizer's new Centers for Therapeutic Innovation. Up-and-coming new route toward more efficient R&D or flash in the pan that produces the same old high rates of clinical failure?

Permalink to Comment

27. ExMrk on February 6, 2011 9:46 AM writes...

So we try to engage each program one by one, in addition to having the kinds of tough metrics we have in place around ROI and value creation in the pipeline

Well, maybe that's a change from a decade ago, when the research IT department hampered R&D to save maybe .05% of the R&D budget by rationing access to things like SciFinder.

Permalink to Comment

28. anon on February 6, 2011 1:03 PM writes...

Interesting article from Harvard Business Review

http://hbr.org/hbr-main/resources/pdfs/comm/fmglobal/restoring-american-competitiveness.pdf

Can't copy it but focus on page 9 and the Amazon example. Wall Street doesn't expect a set number from Amazon, because Amazon has never given one.

Permalink to Comment

29. Fred on February 6, 2011 1:46 PM writes...

Whenever a CEO says he's going to do something different from all the other B-school "sheeple" in his cohort, it's encouraging. Maybe others will follow his lead.

Permalink to Comment

30. processchemist on February 7, 2011 12:17 PM writes...

@20

A well informed source told me that Lilly is heavily hunting for phase II-III candidates to in-license...

Permalink to Comment

31. You're Pfizered on February 7, 2011 3:18 PM writes...

@30

Which major pharma isn't right now?

Permalink to Comment

32. CR on February 7, 2011 3:31 PM writes...

@26, Charles...
"I'm curious as to what this audience thinks of Pfizer's new Centers for Therapeutic Innovation. Up-and-coming new route toward more efficient R&D or flash in the pan that produces the same old high rates of clinical failure?"

You mean the fact that they are copying GSK's CEDD approach, or the new Sanofi approach, or the AZ appraoch? I'd say it's just another way to package a set of individuals for failure and elimination. Pfizer does nothing novel.

Permalink to Comment

33. CR on February 7, 2011 3:35 PM writes...

Sorry, got ahead of myself ripping Pfizer's approach. The Centers for Therapeutic Innovation is their collaboration with academic centers - not their new "nimble approach" that the CEO was quoted as saying will give scientists owning the money and results. That, is the new (old) GSK model.

Permalink to Comment

34. Anon-E-BalbC on February 7, 2011 7:24 PM writes...

@26: Re: Centers for Therapeutic Innovation
As near as I can tell, it will actually fail even harder than usual. The idea is to teach academics how to drug-hunt like the big boys, in the hopes that perhaps they might do something novel that us boring industrial scientists can't think of. You know, because we're all stoopid, and that's why we can't/won't find any drugs.

How long, do you reckon, it takes to train an academic fresh out of the Ivory Tower, in the Ways of Big Business? Yeah. Now multiply by a few hundred trainees. The resulting headache will maybe increase Advil sales.

Glad to hear Merck's CEO seems to have a spine. That really warms the cockles of my heart.

Permalink to Comment

35. Richard on February 15, 2011 4:01 PM writes...

The drug discovery to market process is one long chain of science and marketing participants.
When operating such a long chain one mistake can kill the project.
Multiple disciplines with participatory and decision overlap and overview of each other can rescue projects that do not deserve to die and kill early, ones that scientifically or economically don't pass muster.
Merck in the past let scientists vote with their effort to advance or kill a project.
and
If you were engaged in the process then only when patients were successfully treated could you proclaim success.
If Mr. Frazier returns to that "Culture" Merck will perhaps win again.

Permalink to Comment

36. Jane Yao on July 18, 2012 2:53 PM writes...

Screen our Newly Isolated compound library to generate new drug leads

Please take a look at our unique sample library containing low hanging fruits, and consider screening it in your next drug lead discovery.

We (usahealthresource.com) provide over 12,000 non-commercially available compounds and fractions obtained by column separation of worldwide chemically untapped natural products.

Thanks

Jane
Health Resource Pharmaceuticals LLC

Permalink to Comment

37. Jane Yao on July 18, 2012 7:00 PM writes...

Screen our Newly Isolated compound library to generate new drug leads

Please take a look at our unique sample library containing low hanging fruits, and consider screening it in your next drug lead discovery.

We (usahealthresource.com) provide over 12,000 non-commercially available compounds and fractions obtained by column separation of worldwide chemically untapped natural products.

Thanks

Jane
Health Resource Pharmaceuticals LLC

Permalink to Comment

POST A COMMENT




Remember Me?



EMAIL THIS ENTRY TO A FRIEND

Email this entry to:

Your email address:

Message (optional):




RELATED ENTRIES
The Early FDA
Drug Repurposing
The Smallest Drugs
Life Is Too Short For Some Journal Feeds
A New Look at Phenotypic Screening
Small Molecules - Really, Really Small
InterMune Bought
Citable Garbage