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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

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October 28, 2011

Merck, And What Used to Be Schering-Plough

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Posted by Derek

The cutbacks at Merck seem to have been pretty severe, if the messages that I'm getting from former Schering-Plough people are any indication. A lot of longtime R&D people have been let go, which is no surprise when you see what's been happening over the last few years with Pfizer's acquisitions (just to pick the biggest example). Experience, past accomplishments, and ability are not very high at all on the list of factors being judged when it comes to this point.

It's worth asking just how well that whole Schering-Plough deal is going for Merck, though. Here's a thorough breakdown of all the pipelines at the time the deal was going through. You can see that some of the areas (women's health, respiratory) have worked out as planned, but some others (cardiovascular, hepatitis C) have definitely not. And (as that link makes clear) one of the big variables when the deal went through was how much money would be left from the J&J deal after arbitration. If you look at the company's earnings, it's a mixed bag. Singulair is the biggest on the list, but that one's going off patent next year. Remicade is bringing in some money, after the territories were split up, with Merck holding on to Europe, Russia, and Turkey. The only other product from the Schering-Plough deal on the top-selling list is Nasonex, and that just makes the cut.

I just have to wonder how different this press release would have been if the deal hadn't gone through at all. But sales figures aside, what we don't see is the huge disruption in research and early development, just as you don't see that in Pfizer's deals over the years. You don't notice the drugs that don't get discovered, the early projects that don't quite advance. Was it all really worth it?

Like all the other mergers, this one only makes sense if you factor in big cost reductions - that DataMonitor link above makes this clear. And Merck does indeed look as if they're cutting their expenses as planned, so perhaps these numbers will come out right on target, and earnings-per-share will follow along. But what happened to Ken Frazier's brave attempt to withdraw EPS guidance entirely and focus on rebuilding the company's R&D? Was that just window dressing, was it an honest effort to change things that has now been abandoned, or what?

Comments (72) + TrackBacks (0) | Category: Business and Markets | Drug Industry History


COMMENTS

1. Quintus on October 28, 2011 9:06 AM writes...

It may not help, but my thoughts are with those people and their families who no longer have a source of income. I wish them all the best.

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2. Tt on October 28, 2011 9:49 AM writes...

It cannot be overstated the severe impact on the early pipeline that this merger and subsequent layoffs, reorganizations, and reprioritizations has caused. Morale has never been lower and all the good people who can find jobs are leaving in droves. It's a toxic environment and I see little chance that shmerck will ever recover from a research perspective. A sad requiem for a once proud company.

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3. Anonymous on October 28, 2011 10:10 AM writes...

I think Ken's desire is / was honorable. Unfortunately an objective evaluation of the productivity of the Merck R&D organization would suggest that his confidence in the leadership is misplaced. While it is quite easy to say "all of pharma is suffering", Merck once used to distinguish itself by it's ability to survive in uncertain times. A lost decade of research leadership under Peter Kim and his recrafted organization underlies the unsustainable construct that is the current Merck.

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4. petros on October 28, 2011 10:47 AM writes...

The great hope of revenues (for Merck) from S-P's boceprivir doesn't seem to be realised. After a few months of both on the market it has just over a 10% market share while Vertex'telapravir seems on track to hit $1 billion revenues this year having only been approved in May

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5. PharmaHeretic on October 28, 2011 11:27 AM writes...

Do you still believe that the actions of management in such corporations are guided by anything other the following-

1. Need to speedily extract maximum equity out of a corporation, damn the consequences.

2. Need to appear competent, knowledgeable and polished while doing 1.

3. Need to abuse people while doing 1. and 2.

Whether you like it, or not, the last 20-30 years have seen entire industries being captured, ruined and destroyed by people who are effectively sociopaths. Pharma is just one of the many industrial sectors being decimated by the unwillingness of people to do something substantial about the problem.

One of the more amusing aspects of this ongoing tragedy is that many people not yet affected by sociopaths stand behind them in the hopes of getting rich. Newsflash- You ain't getting rich by sucking up to such people and are probably next in the line for getting shafted.

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6. anonymous on October 28, 2011 11:44 AM writes...

As one who was let go as a senior level manager, I and other like me saw the creeping decay beginning about 10-12 years ago, when Tony, Lex, and other senior management simply stopped listening to their middle science managers and replaced them with lackey’s and sycophants. It went downhill from there. One senior chemistry manager, to illustrate the utter intellectual and moral (yes, moral vacuum), derided Art Patchett, who's scientific acumen in the ACE and lipidimic area drove Merck's earnings in the late 80's, 90's, as a "dinosaur" that just didn't understand where Med Chem was going. Other like me stood mute for fear of retribution from Peter Kim and Tillyer. We were powerless.

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7. Student on October 28, 2011 11:53 AM writes...

It looks like these guys just want others to do the work for them. Excerpt from an interview with Sanofi's Viehbacher:

"Q: What do you see as the biggest challenges for your company and the industry?

A: As we're looking at deficit reduction in both Europe and the U.S., there's huge threats to our industry. ... I think it's going to be extraordinarily important to preserve the ability of the NIH (National Institutes of Health) to invest in research, make sure the FDA (Food and Drug Administration) has the means that it needs. ... It's never been the case that science has been so promising in terms of what it can do for increased health. People are really starting to understand causes of disease, understanding the genomics behind this. ... But at the same time, it has never been more difficult to fund a new idea. Venture capital has pretty much gotten right out of healthcare. ... So I think there has to be a greater demonstration that we can convert a great idea scientifically into a patient benefit with increased frequency -- and faster."

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8. My 0.02 on October 28, 2011 11:58 AM writes...

One thing I have been thinking about is the impact of these endless reorg and downsizing at big pharma on SIGMA-ALDRICH. I am pretty sure that big pharma R&D counts for a big chunk of their business. Sure, SIGMA-ALDRICH has presence in Chindia. Compared to the astronomical margin on research chemicals they can get away with it here, in Chindia, they have to compete with the suppliers that actually made these chemicals in the first place.

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9. HappyDog on October 28, 2011 12:06 PM writes...

6. anonymous

Art Patchett has probably saved or improved the lives of millions of people through his contributions. He did all of this while Merck gradually whittled his lab down to a smaller and smaller size. One of my colleagues said that when he left Merck, Art was still there with two associates, and outproducing the 30+ sized research groups who had fully embraced the combichem paradigm.

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10. Will on October 28, 2011 12:07 PM writes...

Sigma Aldrich pays its people peanuts.

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11. This guy on October 28, 2011 12:08 PM writes...

What #2 said. The morale is in the basement, people will do what ever they can to stay employed, and many who can leave have left. It seems that people who are protected, for whatever reason, will continue, and those with no advocate will be let go regardless of their abilities. So sad.

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12. AlChemie on October 28, 2011 12:21 PM writes...

makes one wonder who 'advised' them and what were they smoking when they went over the portfolio
KF did a wonderful job managing the Vioxx suits but does that make him the 'best' leader for the company, too many MBAs not enough MDs

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13. Eponymous on October 28, 2011 12:22 PM writes...

I had the distinct honor to work with such distinguished scientists such as Paul Anderson, Steve Young, Joe Vacca, Mark Bock, and Roger Freidinger at WP. Tremendous scientists. Sadly, this industry does not seem to be able to product this level of talent anymore. Much of what passes as "scientific leadership" these days is nothing more than politically correct toadys. Very sad.

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14. Morten G on October 28, 2011 12:42 PM writes...

When you ask whether it was worth it for Merck, do then mean Merck the company, the staff, the executives, or Merck the shareholders?

I'm guessing that that's four different calculations.

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15. Anonymous on October 28, 2011 7:58 PM writes...

It was not worth it for either Leg-SP or Leg-Mrk staff, that's for sure. The execs got huge bonuses, and payouts for walking away. Shareholders got cash for their SP stock when it converted. Maybe for them. For the company as a whole - no. Only if Kim and all his incompetent cronies, and even down to most dept heads, had been rooted out and replaced with some venerable SP folk, or even outsiders, would it have been worth it for the company. The merger was a perfect opportunity to stimulate change in sclerotic Merck. But no, the execs and Kim et al used it to expand their fiefdoms, line their pockets with their bonuses, and practice their well-honed people management skills that would put the Marquis de Sade to shame.

Projects, what projects? No one talks about projects. Management is directly responsible for the wholesale destruction of the early pipeline brought over from SP. And no one seems to know what projects Merck really had in the early phases - its all smoke and mirrors.

Unsustainable is not the right word for Merck - but that's OK. Merck, once proud or otherwise, doesn't give a hoot about the patients. Its all about the money. Which management expects will pour in from BRICK - which is why a new HQ is under construction in Beijing. Its called Merck One. Who wants to bet on how long til Merck is no longer a US-based company?

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16. whocares on October 28, 2011 9:18 PM writes...

a Legacy SP scientist who just get laid off went on to a plane going to Florida only find out that he is in the same plane with the previous notorious SP CEO Fred Hassan. He went straight to him and tell him that he just get laid off. Now let's guess, what do you think will go through Fredy's mind? My guess is that OMG, is he gonna punch me?
BTW, this is a true story.

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17. Anonymous on October 28, 2011 10:15 PM writes...

#13. While in Kenilworth as 'head of chemistry' Joe Vacca did nothing but insult legacy S-P employees while contributing absolutely nothing to the programs. How can someone who is obviously so inept, while trying to claim inventorship to Crixivan and the integrase molecule which clearly came from the IRBM group in Italy be regarded as a distinguished scientist. In the end he did not even have the guts to stick out his tenure in Kenilworth, clearly retreating to West Point for the last few months to the beginning meaningless life at Merck.

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18. Anonymous on October 28, 2011 10:16 PM writes...

It was not worth it for either Leg-SP or Leg-Mrk staff, that's for sure. The execs got huge bonuses, and payouts for walking away. Shareholders got cash for their SP stock when it converted. Maybe for them. For the company as a whole - no. Only if Kim and all his incompetent cronies, and even down to most dept heads, had been rooted out and replaced with some venerable SP folk, or even outsiders, would it have been worth it for the company. The merger was a perfect opportunity to stimulate change in sclerotic Merck. But no, the execs and Kim et al used it to expand their fiefdoms, line their pockets with their bonuses, and practice their well-honed people management skills that would put the Marquis de Sade to shame.

Projects, what projects? No one talks about projects. Management is directly responsible for the wholesale destruction of the early pipeline brought over from SP. And no one seems to know what projects Merck really had in the early phases - its all smoke and mirrors.

Unsustainable is not the right word for Merck - but that's OK. Merck, once proud or otherwise, doesn't give a hoot about the patients. Its all about the money. Which management expects will pour in from BRICK - which is why a new HQ is under construction in Beijing. Its called Merck One. Who wants to bet on how long til Merck is no longer a US-based company?

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19. Quo vadis, Schering-Plough? on October 28, 2011 10:44 PM writes...

Taking a break from pharma-centric banter, does anyone know if Mega-Merck will follow the lead of Pfizer and BMS by divesting non-pharma business units? For a professional organic chemist, it is becoming ever harder to avoid the stereotype of being fit to work only in med chem or process.

Why should having an advanced degree in chemistry exclude anyone from a job in developing non-drug consumer products? I doubt that everyone developing household cleansers, cosmetics, or whatever had learned specific formulation skills in grad school. Sure, suntan lotion (SP's Coppertone) or mouthwash (Pfizer's Listerine) may not carry the same "prestige" as a cancer therapeutic, but the profit margins on the former products are much larger and their liabilities are much smaller.

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20. S-P employee on October 28, 2011 10:55 PM writes...

Thanks Fred.

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21. Anonymous on October 28, 2011 11:33 PM writes...

@2,5, 6 and others...While all these layoffs are nasty, I sincerely hope that it spawns some new start up biotechs. There is so much talent on the street now. Looking back on who was let go and who was retained at merck, roche, pfizer etc... it is clear that the layoff artists are bleeding and there is no future...

Let's go people! We all need to pull together, get some startup's going and show the big pharma BS who's boss!

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22. Anonymous on October 28, 2011 11:47 PM writes...

@17 Didn't Joe Vacca also shut down Merck Frosst? This guy seems to be moving around. Never met the man but my "perception" was that his reputation was good.

Where is JJP from the chemistry group at the KW site? Seemed to me to be a great positive influence...

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23. Goldmember on October 29, 2011 1:56 AM writes...

Letsh not forget all the dutsch peeple who could afford a nisch schmoke-and-a-pancake when employed by Organon. Mishter Hassan came in to buy a nice schmall company which was quite profitable (I love gold!). But Fred it scheems loves gold more than I and so he shold the Dutch to a real Dick. And now all the Dutch no longer have a place to work. I think we must rise up and feed these guys to the sharks-with-frikin-lazer-beams.

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24. Anonymous on October 29, 2011 7:14 AM writes...

@13 compels me to revive an old Sesame Street jingle from back when I was a kid.

"One of these names is not like the others.
One of these names just doesn't belong.
One of these names is not like the others.
Can you tell me which one by the time I finish this song?"

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25. Anonymous on October 29, 2011 7:19 AM writes...

Can someone put some actual numbers to these "reports" and where possible, tie those numbers to specific research sites?

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26. seen2much on October 29, 2011 7:30 AM writes...

Here's the "beauty" of it all (from a 20+ yr vet of MRL). Do excuse my frustration:

1. Merck used to be a leader in the Pharma industry, which is why I joined. Now we are merely followers, and late to the party at that (evidence: SP merger. P.S. - I have no issues with the many talented scientist I've encountered from legacy SP).
2. Merck hubris, while legendary in the 1990's ("America's Most Admired", after all!!!) has, despite the devastating decline Merck has experienced since then, only grown.
3. R+D "bench-level" talent, once celebrated, serves only as a bullseye for HR to shoot at. "What, you made a Drug??? So what!! We need to eliminate your position for "business reasons." .....What business? Aren't we supposed to make drugs?
4. Six rounds of major layoffs in R+D and still not done??? Do explain.
5. "Early pipeline, what early pipeline? You mean we need that? For next year? Well then, get right on that. What? Everyone left in your area is working on "advanced" programs? No problem, they can can do both!!!!! And don't forget to keep it simple since we'll be outsourcing it once validated!"
6. Hurry up and get those protocols written-up so we can outsource your position once you're done. We have headcount "goals" to meet.
7. "We know you just moved from Dept. A to B a year ago, but we want to back in B" (until next year when you can go back to Dept A). Moving your lab, without help, won't take more than a couple of hours, will it? You do have deadlines you know. Here are your boxes."
8. Merck enjoyed record revenues this quarter; oh, and we'll be eliminating an additional 13% of our workforce, with a disproportionate number coming from the US.
9. "We know this is hard on our people, but this is for our future!" .....Whose future????
10. "We are in this together"....but I'm going to make 100X more than you this year, because I make all the "hard" decisions (let killing the goose that laid the golden egg)

I could go on, but I lost many excellent colleagues this week and I'm drained to the core....with no end in sight.

Be well.

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27. Outsider's Opinion on October 29, 2011 8:27 AM writes...

I am not from Merck. I wish all the best to Merck-SP employees who were let go.

It is pretty clear to me that, nowadays, Merck does not care too much about his own R&D, science, hard work and being a first-in-class.

This became clear when Merck closed Merck-Frosst, its most productive and hard working site. And further confirmed when they decided to push an inferior me-too drug (Boceprevir) to compete with a gangbuster drug (VRTX's Telaprevir).

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28. LegacyMerckGuy on October 29, 2011 8:31 AM writes...

@22, MF was on the block before Vacca was placed there, that was announced before he moved.
@26, I agree with you 100% that sounds a lot like my Voice of the Scientist survey. Like they even care about that anyway.

IMHO, the biggest problem is with Kim and Tillyer. They both seem to have no clue what they are doing and are scurrying around stuffing millions down places that are not paying off. For example, Tillyer championed an automated ligand screening system (ALIS) and guess what? After a few million invested, it was scrapped. A few million went into the construction of an automated synthesis lab (ASAP), and there are brand new Tecans sitting there gathering dust and they are STILL wanting to expand it. Tillyer actually had the balls to say we were all "sourcable" in a meeting last year. The best expression that I have heard lately is that Merck is the place where there are many people rising but none of them are stars. With these two schmucks running MRL, how can Frazier be expected to make any good informed decisions when all they give him is garbage?

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29. LegacyMerckGuy on October 29, 2011 8:35 AM writes...

I also forgot to mention the billion dollar SiRNA gem provided by Kim.

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30. Sundowner on October 29, 2011 9:51 AM writes...

I had colleagues working in S-P, former Organon, and they were really pessimistic about the future when the M&A process started. They had a good pipeline, they were brilliant... and they were fired. I think that's one of the most stupid things I have seen in the pharma industry in the last five years. You purchase a company because you want the pipeline... and then you fire the people that contributed to the pipeline, making impossible to keep the effort for the future. It is like buying a Ferrari because you need a fast, fancy car, and then scrapping the engine.

To #8. Some years ago my company (a custom synthesis company) worked for Sigma-Aldrich preparing the compounds you see in the catalog. After a time you are sick of seeing how they pay you x dollars/g and they sell the stuff at a price 4 or 5 times higher; when they sucked us our blood, they moved everything to cheaper suppliers in Chindia. So honestly, I do not give a s*** if they lose a big chunk of their business when they have contributed greatly to other companies losing a big chunk of their business.

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31. Anonymous on October 29, 2011 10:23 AM writes...

Joe Vacca is only the executioner! Do not blame him because he is as obedient to his bosses as he is to his wife. Now leave him alone because he is out of a job (with a nice pension and package though) in Nov. Soon he will be the CEO of VaccaConsulting.

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32. Anonymous on October 29, 2011 12:15 PM writes...

@28 you are wrong, Vacca was at MF before the announcement. Famous quote from Joe, when asked what does Interim Site Head mean (that was his title). His response was "At Merck we are all interim." How prophetic.

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33. nonpharma chemist on October 29, 2011 1:03 PM writes...

@30 Sundowner: Please tell me that you weren't synthesizing brownish palladium tetrakis for Sigma-Aldrich. Over the years, I've found that ordering from S-A can be such a crapshoot, especially with all the outsourced manufacturing. On several occasions I've received pristine yet EMPTY bottles of reagents, shipped with vermiculite in a sealed pop-top canister!

Like others above, I wish all of the doomed Merck/Schering-Plough employees the best. Unfortunately, I can't offer another more than my condolences; I'm just hanging on to my job for dear life. Anyway, did the Merck/Schering-Plough REALLY come as a surprise to anyone, considering the trail of death, destruction, and mayhem he left at Sandoz, Wyeth-Ayerst, AND Pharmacia-Upjohn?

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34. Anon on October 29, 2011 1:39 PM writes...

Derek writes:

Experience, past accomplishments, and ability are not very high at all on the list of factors being judged when it comes to this point.

However, they are top on the list for what it takes to be successful in most any scientific field.

To not care about such matters is a sign of a dying company.

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35. Susurrus on October 29, 2011 2:04 PM writes...

Derek, I nominate you to be the leader of the revolution. Be our Che. Start a company - I'll work for peanuts to do good science without the BS.

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36. Susurrus on October 29, 2011 2:16 PM writes...

@35 - myself

without the execution, of course.

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37. Susurrus on October 29, 2011 2:23 PM writes...

Peanutd and an equity stake (Did somebody say Steak?).

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38. Susurrus on October 29, 2011 2:25 PM writes...

Peanuts. Sorry. I was typing and eating a sandwich at the same time.

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39. LegacyMerckGuy on October 29, 2011 3:18 PM writes...

@32 I knew of the intended closure before he was there officially. At the time we had an in vivo assay run there and we were told that it would be closing so we had to adjust. A short while later, Vacca was sent there. You're crazy if you think that he was put there THEN it was decided that it would close. No wa