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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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In the Pipeline

« GPCRs As Drug Targets: Nowhere Near Played Out | Main | Too Many Metrics »

August 21, 2013

A Call For Merck to Cut R&D

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Posted by Derek

This is just what people working in R&D at Merck don't want to see. According to FiercePharma, a prominent analyst is urging the company to get its finances in line with its competitors. . .by cutting R&D.

Seamus Fernandez at Leerink Swann says that Merck should reduce their expenditures in that area by around a billion dollars, which is at least 8 times deeper than the new R&D head, Roger Perlmutter, has talked about. Here's the whole analysis, which includes this:

We believe a major restructuring at MRK is necessary; movement here likely would be well-received. As pressure builds on MRK mgmt to: (1) improve R&D productivity, (2) maintain top-tier operating margins, and (3) continue returning cash to shareholders, we believe a deep restructuring should be seriously considered in light of the relatively lackluster 2013 top-line performance, disappointing Ph III/ registrational pipeline evolution (odanacatib, suvorexant, Bridion U.S.), and overall industry challenges. We estimate that every $1B reduction of operating expenses would add $0.25/share to MRK's bottom line, and would bring MRK's absolute R&D spend closer to PFE's (MP) ~$6.5B but still be in line with several of its diversified competitors' spend at ~14% of sales. A 10% cut in overall operating expenses would equate to ~$2B of annual cost reductions.

If you read the rest, you'll see that the reasons Fernandez has for optimism are all on the financial side of the company: how much cash the company has on hand, its opportunities to do things like sell off animal health, sell off consumer care, and of course its opportunities to cut costs. There's absolutely nothing in there about the company doing better because of anything that's coming along in the pipeline. No, all that drug stuff is in the negative category: doubts about the big IMPROVE-IT trial in cardiovascular, competition for the existing drugs, regulatory uncertainties, and so on. Nothing but trouble.

At this point, it would be easy for me to get up on the lab bench and make a rabble-rousing speech about how short-sighted all this is, how Merck is a research-driven company, not some sort of bank or insurance operation, and so on. I'm tempted. But these points, while definitely not invalid, don't address whether Fernandez might be right about Merck's current situation. He knows as well as anyone that the only reason Merck got to be this size is by discovering and selling valuable medicines, and he knows that this is still the company's core business. Those ideas about selling off animal health and consumer products? Those are supposed to bring in more money to discover drugs. If Merck doesn't do that, they're toast; that's the engine of the whole company.

OK, so why cut R&D if that's the whole reason the company exists? Here's where we get down to it. Fernandez's take is that Merck is spending too much and getting too little back for it. He's not suggesting the of chopping most of the R&D department to make the bottom line suddenly bloom (for a while). This is more of a gas-mileage problem. In this view, Merck's engine is R&D, for sure, but that engine is burning too much fuel (money) while covering too little distance in the process. To stick with the engine analogy, does it really need twelve cylinders? Does it have to be as heavy and humungous as it is? After all, others are burning similar amounts of fuel (or less) and making more progress.

What Fernandez is saying to Roger Perlmutter, as I see it, is "Throw us a bone, Roger. Show that you seriously realize that things have been going wrong at Merck, and that you understand that the company's gotten in the habit of spending too much money. Show us in the only way that you can, because just telling us that you're going to do things better and smarter isn't enough. Everyone says that, no matter how dumb they are. Even if you really can follow through on that better/smarter stuff, no one will see the results of it for years. Show us something that we can see happening right now."

The question then is whether this sort of cutting and re-engineering can be done without disrupting Merck's R&D even more, and now that is a tough question, and I'm glad I'm not on the hook to provide an answer. The problem is, a company can cut back like this, but still keep the same inefficiencies and bad processes that got it into trouble in the first place. That's what happens when a company lops off a whole division: "We still suck, but now we suck on a smaller scale". It's doing the same not-so-good stuff as it always did, but in fewer areas, and might therefore be even less likely to make anything of it. A company can also cut back in ways that might, objectively, be the right thing to do, but nonetheless end up disorganizing and demoralizing the remaining workers so much that things end up worse than before in that way, too.

These are the downside risks of taking the cut-back-your-expenditures advice, and they're very real. Not taking the advice has real risks, too, naturally. Running a company that size, or its R&D department, is not a low-pressure job with easy decisions. We'll see which way Perlmutter goes, and how he makes his case. Keep in mind, too, that these issues do not apply only to Merck. Not at all.

Comments (60) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. Anchor on August 21, 2013 8:47 AM writes...

Merck had it coming! All this had to be seen through the kaleidoscope of merger with SGP. They were fooling each other during the merger discussion by simply hyping the pipe line and post merger they got really screwed. Late stage failures, FDA's delay/deny alongwith withdrawal only compounded the matter further. Too sad that R and D will take a hit! Worked with some great chemists!

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2. jrftzgb on August 21, 2013 8:56 AM writes...

again rent seeking behavior

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3. Lunar landing on August 21, 2013 8:57 AM writes...

Let's propose this as a new model, paradigm for ROI and innovation.....MRK invests 9 billion on R and D and has 9 billion in the bank. Let's close down R & D and invest the 18 billion in a savings account making an optimistic 5%. Mother MRK is now making 900 million per year with NO overhead. Now that's a blockbuster with no lawsuits on the horizon, no generic competition, no risk and you only need one or two people to manage this project.....Larry Summers perhaps? I have solved all of their problems. Where is Judy when we need her?

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4. anonymous on August 21, 2013 9:03 AM writes...

#3 this is Judy and your plan is simply brilliant! I can say, roger that!

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5. Anonymous on August 21, 2013 9:05 AM writes...

I actually look forward to a nuclear war, it would solve everything.

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6. biotechtoreador on August 21, 2013 9:05 AM writes...

"A 10% cut in overall operating expenses would equate to ~$2B of annual cost reductions."

Just don't cut the research that's going to result in the next billion dollar drug. Should be simple to figure out what that is. There, my job is done!

It's great that a guy with a BA in chemistry and many years experience as a consultant or analyst has a forum to make sweeping suggestions like this, but I would take it a bit more seriously if he were an actual scientist with real experience in drug discovery/development and could make real recommendations about what programs to cut and why.

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7. barry on August 21, 2013 9:31 AM writes...

Lunar Landing has said a mouthful. In his haste to rescue the Banking Sector, Timothy Geithner has made it too attractive for anyone with money (and that certainly includes Big Pharma) to play the stockmarket/derivatives markets rather than actually investing in innovation.
And Lo! The DowJones is in record territory, and American Industry (including Pharma) is languishing.

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8. Anonymous on August 21, 2013 9:39 AM writes...

@7 barry - speculating and gambling is far easier than investing in anything that might be useful.

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9. biotechtoreador on August 21, 2013 9:47 AM writes...

"speculating and gambling is far easier than investing in anything that might be useful."

Do you have a concrete example where that is actually true?

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10. watcher on August 21, 2013 9:52 AM writes...

And in following this advise, you become another face in today's Pharma crowd.....the model is working so well elsewhere.....NOT!

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11. Anonymous on August 21, 2013 9:53 AM writes...

Of course not, but it seems to reflect current attitude.

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12. Useless Molecule on August 21, 2013 9:55 AM writes...

@8

By definition, investing is speculating and gambling...

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13. milkshake on August 21, 2013 10:10 AM writes...

the difficulty is that when you re-organize and downsize research yet again, whats left is left pretty demoralized. The survivors take long time to recover. Any downsizing and reorganization should start at the headquarters.

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14. biotechtoreador on August 21, 2013 10:27 AM writes...

"By definition, investing is speculating and gambling"

So is research.

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15. Toad on August 21, 2013 10:54 AM writes...

@3 Lunar:

I know you're being facetious, but others may wonder why not to some degree. Just a simplistic example, but MRK has billions of corporate bonds they floated with coupons >5% for the next 10-30 years. The interest they make on their cash can't pay all of their debt obligations. It's the same reason you don't use a home equity line to buy certificates of deposit.

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16. *sigh* on August 21, 2013 11:00 AM writes...

One can cut R&D costs while keeping staff by moving it out of North America and Europe. As Merck's competitors have and are doing... IBM has done this for years and the market tends to love it.

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17. kemist on August 21, 2013 11:09 AM writes...

Never asked for or needed grand labs downtown to do research. Give us a wharehouse in the suburbs and some half decent equipment and you will see research as cheap as what u get in China. They're not really interested in this, they know it doesn't matter what they do, the gig is up. Its all about PR trying to postpone the inevetable fleeing of investors.

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18. kemist on August 21, 2013 11:10 AM writes...

Never asked for or needed grand labs downtown to do research. Give us a wharehouse in the suburbs and some half decent equipment and you will see research as cheap as what u get in China. They're not really interested in this, they know it doesn't matter what they do, the gig is up. Its all about PR trying to postpone the inevetable fleeing of investors.

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19. pgwu on August 21, 2013 11:15 AM writes...

I do not see how they can cut down this much without some serious damage. A lot of things are probably built in with long term contracts/obligations. Kind of like the former governor of CA signing a long term energy contract a while back. Politicians might get recalled once in a while but business execs probably just get a huge payoff to move to another company.

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20. MDACC Grad on August 21, 2013 11:23 AM writes...

@17 kemist. Lexicon has taken to this, and instead of building something massive in downtown Boston, and having to pay their workers to match the cost of living, they are in REALLY NICE suburb of Houston (Woodlands).

@Derek, If I look at this with my scientist hat on, I look for what the true issue (I'm cautious to even this one analyst's public opinion a problem for the company) here is. That problem is how do you let external parties see that you are making changes (hopefully, changes for the better) without giving out too much information and without just saying "trust us"?

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21. Anonymous on August 21, 2013 11:29 AM writes...

@20: Giving out too much information?

As if any one company had a secret solution, the entire industry is shot.

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22. Chrispy on August 21, 2013 11:39 AM writes...

Whatever they do, they ought to do it ASAP because the whole place is already demoralized waiting for the other shoe to drop. Roger has canned the most experienced people at Merck and announced that further cuts are coming. It is really hard to chop your way to a more productive company -- do you really believe these people are standing in the way of productivity? Or is this just a way to consolidate power? Unfortunately, it appears that Roger's ego took a bit of a bruising when he was unwilling to go along with cuts at Amgen (and was subsequently shown the door). The carnage is likely to be ugly. It already has been.

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23. Anonymous on August 21, 2013 11:48 AM writes...

The problem: "CFOs disdain R&D as an enterprise that fails to even return the cost of capital. As a result, they want to get as much of the capital and expense allocations off company ledgers as they can."

G.W. Merck must be turning over in his grave. The company should remove his revered name from the corporate abomination that it has become. This company no longer reflects the values of its namesake as expressed in the quote below:

George W. Merck ranked the 4th Best CEO of All Time by Fortune: "We never try to forget medicine is for the people. It is not for the profits. The profits follow, and if we remembered that, they have never failed to appear. The better we have remembered it, the larger they have been."

Where have all the George Mercks gone?

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24. Hap on August 21, 2013 12:01 PM writes...

1) Gambling generally doesn't require any thought at all, and is easier by default (but doesn't make money) - buying a lottery ticket is easy. If you actually want to make money gambling, it requires some work, but the strategies are knowable and systematizable (the difficult part is evading detection at casinos).

I assumed speculation is short-term investing - you're not guessing long-term success (which requires lots of thought) but shorter-term variations which require some thought but not as much. The methods for speculating may be in some cases may be mechanizable, but buying the computer power is certainly an investment (requiring long-term thinking).

If you want to make money gambling, you have to be big enough to get the government or someone else to eat your losses.

2) I think if anyone knew what research to do and what to cut, they'd be printing money and laughing to the bank. Lots of educated people have been trying and failing to do that. I'm not sure that having a BA will make him worse.

I wonder if the problem is that management and investors want to make money. Making drugs used to be the aim, which generally made money. Now making money is the proximate goal, which makes it hard to find drugs, and even harder to make drugs that make money, so something has to be cut to try and free up money. Since people don't (and can't) know what will be successful, needing to cut something to make money now isn't going to help, unless bleeding to death is Merck's goal.

3) There has been lots of debate about moving to cheaper places - access to employees (do they actually want to live there? can you find new ones that you want easily? can employees get another job if they leave or are laid off?) probably takes a hit moving to cheaper digs far away.

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25. John Wayne on August 21, 2013 12:07 PM writes...

One of the silver linings of a topic like this is it highlights who is really the boss.

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26. DLIB on August 21, 2013 12:14 PM writes...

@23 When the founder dies very often the vision ( and the desire/cache to execute their vision ) dies with them. The follow on CEOs do their magic by mergers / stock buybacks...simply trying not to screw up too much in the boards eyes. Innovation dies.

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27. simpl on August 21, 2013 12:28 PM writes...

Lunar lander's approach has been done before, by Boots, who couldn't follow up on their ibuprofen franchise, and kept their Supermarkets in Britain, rather than the R&D side. I'd say it was a better strategy than say Elan, who sold the rights to their coming successes as a way to continue with R&D.
What I find interesting is that the #1 Pharma spot seems to be difficult to hold on to, and even harder to regain.

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28. biotechtoreador on August 21, 2013 12:29 PM writes...

"If you actually want to make money gambling, it requires some work, but the strategies are knowable and systematizable (the difficult part is evading detection at casinos)."

Same could be said about drug research (minus evading detection). Just like you never know if that next card is a 2 or a queen, you never know if that next compound will result in liver tox in 0.2% of patients. "Since people don't (and can't) know what will be successful" is a good analogy.

"I wonder if the problem is that management and investors want to make money."

I'm pretty sure both parties do, though how this happens is not aligned. Investors prosper when the share price goes up (or down, if they're short the stock). Management makes hundreds of thousand (or millions) a year in salary and bonuses not always related to share price (I am infuriated every time I read a 14A showing a biotech CEO got a bonus the year after a major clinical failure). In a perfect world biotech executives would be forced to buy shares of the companies they work for, but there's a reason this is a rarity (I'm not sure if this is the case in pharma: I don't see the last time either Perlmutter or Frazier bought shares of MRK on the open market).

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29. anchor on August 21, 2013 12:29 PM writes...

@26 He died almost 70 to 80 years back. As a matter of fact Merck exceeded his expectations! It is during the last decade plus years that they have been having it bad going from crisis to crisis.

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30. oliver on August 21, 2013 1:29 PM writes...

@28- at Pfizer I know that above a certain paygrade you must hold an annual salary worth of stock.

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31. CMCguy on August 21, 2013 2:16 PM writes...

Derek I think your interpretation of Fernandez's message to Perlmutter is somewhat off because it implies possible long-term thinking and interest towards an improvement plan. As a Stock Analyst I would offer what he would say probably more akin to "Why aren't you following the herd here, we want you to decimate R&D-the future be damned, this means I might actually have to critically evaluate your potential relative to others rather than simply replacing MRK in my Pharma analysis template". In the end suspects just wants to see a likely stock price spike so can sell stagnate MRK shares to generate obscene profits for his firm/clients this Q.

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32. anon on August 21, 2013 3:00 PM writes...

@31 - the only obscene profit is a small one

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33. Merck Lurker on August 21, 2013 3:31 PM writes...

My fear of further big cuts is that Merck is likely to lose the last of our catalytic innovators, those rare gems with the skills, passion, AND leadership essential to reshape the company. In a place as stodgy and traditional as Merck, inventive iconoclasts are few. And we've lost too many of these people already.

Like most of pharma, Merck has recently undergone repeated major surgeries. One more round of a thousand cuts may well be mortal. The few bravehearts who have soldiered on this long are likely to finally admit defeat, declare the patient's wounds mortal, and seek their fortunes elsewhere.

In the current business climate it will be impossible for Merck to replace them, because only their ilk can attract and grow a staff able to move the mountains that stand in our way.

And that's something that Wall Street's chainsaw surgeons will NEVER understand.

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34. Mad Dog on August 21, 2013 3:39 PM writes...

Did that analyst REALLY just say that Merck should be more like Pfizer! I have not worked for either company, so as an outside observer I hope Merck passes on that bit of advice... for the sake of the jobs that are left in Pharma.

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35. Hap on August 21, 2013 3:46 PM writes...

Getting public or semipublic financing at this point is like going into indentured servitude during which the people you serve decide that your work isn't enough but that they need your internal organs for their resale value as well. The fact that you won't be alive very long after your contract is up is irrelevant to them, as are you - as long as they get their pound of flesh, nothing else matters.

Under this system, one wonders for how long anything of value will be made. It's sort of like Rome in the early AD/CE, if the emperors had given the Visigoths the keys to the city and said "Have fun."

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36. Trollumination on August 21, 2013 3:48 PM writes...

@3 - I would love to have a savings account that paid 5% interest. Who wouldn't?

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37. anon-23 on August 21, 2013 3:52 PM writes...

Seamus Fernandez is very Kind. For god's sake, its only $ 1.0 Billion off the R & D budget !! it will not hurt or improve the overall outcome.

These big corporates are mini government organizations unto themselves with bloated budgets, redundancies and hugely wasteful non-R and D spending. if one looks carefully and objectively - there are many research programs ongoing at Merck that are only for appearances. Rich Tillyer did his best to get this under control.

Lets not be such a socialist and try to save the job of every tom and his or her brother. Gobs of jobs at merck (research) (mostly the middle and upper management) are redundant. This delays decision making and costs the organization an incredible amount in terms of productivity.

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38. Hap on August 21, 2013 4:22 PM writes...

How well has the cost-cutting worked everywhere else?

Cutting unnecessary people and projects to save money is fine and dandy, but there hasn't been much evidence that anyone knows what to cut (and in some cases, that they even care about what gets cut). If the surgeon has a mandate to cut a pound of fat, and he is not particularly invested in your continued survival, do you want to guess how well the surgery will go for you?

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39. Anonymous on August 21, 2013 4:26 PM writes...

Most likely Merck's senior management will spend loads on top management consultants to tell them which jobs to cut: So, will it be the low paid scientists who actually do stuff, or the managers that called the consultants and pay their huge bills? Hmmm...

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40. M on August 21, 2013 4:39 PM writes...

It is obvious that there are not enough good projects to support 4 research sites and it is simply inefficient. There were countless phony projects in the last 10 years. The Boston site is an embarrassment. Kicking out Peter Kim cannot solve the problems. Roger Perlmutter needs to greatly reduce the number of research sites and use the resources efficiently on selective projects. It is not just good for the company, it is good for the scientists too. It is very frustrating to switch to another phony project every few months.

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41. anon on August 21, 2013 4:52 PM writes...

we have multiple directors and group leaders on the same project nowadays. even the project strangely seem like just a means to justify the manpower not the other way around.

If Fernandez finds out, he might demand another $ 3.0 Billion in cuts from the R & D !!

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42. Markham and Lane on August 21, 2013 5:35 PM writes...

Semus Fernadez:

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

Thanks again Semus you are a true out of the box visionary thinker. Something we can truly support and get behind. George Merck and the company and value he created are sooooo passe - sooooo yesterday. Divest anything of value in order to create value. Something we can get behind.

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43. Mr. E. Chemist on August 21, 2013 7:27 PM writes...

These analyst/consultant types have actually been running pharma for the past ten years or more, and are partially responsible for the current state of affairs. Their repeated mergers, acquisitions, new models, and multiple management reorganizations have actually decimated the industry, and have been a leading cause of the lack of productivity of research. Hard for research to be successful if it is micromanaged and never left alone, instead lost in endless stupid reorganizations that don't solve anything.
Certainly the industry needed to change, but I will argue that the companies who changed the least and did the least amount of this consultant driven stupidity (like BMS , Novartis, and Gilead) have come through this better than the others who "changed"(like Merck and Pfizer!). The business types believed that ”change was good” but they changed what was good along with what was bad and have irreversibly damaged the research capabilities of the industry. They threw out the baby with the bath water, and got a disaster in its place. Unfortunately, the leaders at Merck have no vision and are unable to come up with a meaningful long term plan of their own, so they will bow before these business analyst nitwits and will do exactly what Wall Street asks. No vision and no plan, so how else do I preserve my job and my big salary and bonus - keep the clueless business pundits happy. This industry so desperately needs to get back to science/medicine-based leadership, and away from the Harvard Business School leadership that has guided the entire industry down the toilet. It began with direct –to –consumer advertisement, the single move that changed the industry from a science focus to a marketing/business focus. That started the downward spiral. We then had visionless leaders who cycled through various unsuccessful ways to increase productivity (such as combinatorial chemistry, high throughput screening, matrix management, franchises, six sigma, etc), all of which failed miserably. You don’t hear the old George Merck quote much anymore, because the business types have wiped it away – George is likely turning in his grave. It’s all about executives in ultra-conservative mode, trying to preserve their lucrative positions, and Wall Street types guiding them so that together they can further line their pockets with someone else’s money. Companies are now all led by leaders who are more interested in doing whatever they need to do to meet their objectives so that they can get their fat bonuses, regardless of whether their endless new initiatives are good for the company or not. Peter Kim did this for ten years, and utterly devastated the MRL Labs with his foolish spending, collaborations, and endless reorganizations. He was the mastermind of the BRGOS fiasco, which forever damaged the Merck labs and destroyed it’s soul and the culture of innovation that was unrivaled anywhere in the industry. He took care of all of his friends though, made sure they all got rich on Merck’s dime, while he and his sidekick Tillyer got rid of anyone who questioned them or posed a potential threat. Destroyed the culture and created a yes man environment where no one dare speak their mind. Inexplicably, Tillyer is still being paid by Merck! How do you cover for incompetence and a lack of vision – create chaos via merger, acquisition, or collaboration. Peter Kim was the master of this, and was allowed to do this by an even more incompetent CEO in Dick Clark, who should go down in history as the worst CEO in the history of pharma. Amazing that the only accountability for all of this nonsense has been among the working scientists who get laid off because of the incompetence of the leadership. The leaders just continue to get rich, and deflect blame onto the business environment, the challenges, the FDA, or something else. It’s disgusting, how about some accountability? I hope Roger can see the reality of all of this, and isn’t listening to people like Tillyer, or for that matter these Wall Street /consultant types who have only their own greed in mind and don’t give a damn about the industry or the people who actually do the work.

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44. Anonymous on August 21, 2013 8:20 PM writes...

Sadly these analysts probably come from the same teams that advised Kodak and the Detroit motor industry. They know nothing about drug discovery but stockholders and CEOs listen to them. Sadly, the real scientist that could turn this industry around have been 'dumped' in favor of the 'yes' men. Most of Pharma senior management today couldn't discover a drug in CVS!

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45. Anonymous on August 21, 2013 9:44 PM writes...

@23
We have lost many quirky scientists who helped make it a great company. Not all, but many. Most left voluntarily because they didn’t feel like they fit into the developing culture.

Creation of drugs wax and wane. It’s an amalgam of so many factors acting like independent waves, some constructive and some destructive. It’s easy to know and say the right things to do but incredibly difficult to actually do. I am an optimist and believe we will succeed.

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46. Anonymous on August 21, 2013 9:59 PM writes...

Won't 5S and Six Sigma save the company?

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47. UK Chemist on August 22, 2013 4:50 AM writes...

@43
David Brenan was worse than Dick Clark,but it's a close call.

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48. anonymous on August 22, 2013 5:29 AM writes...

@3. Lunar landing:

"Where is Judy when we need here?"...Very inside comment, if ever I heard one. Sounds like you too are an old-timer (hopefully not Ex-)Merckie. I salute you for your very poignant and clever question. I too remember the "Judy" speech - Tishler Auditorium, I believe. A bit foggy on the date, though I also remember Ed's statement during the same meeting (to paraphrase): We will not become another Pfizer.

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49. anonymous on August 22, 2013 5:42 AM writes...

@ 45 Dream on! Not that you have any choice, you stay put. I take an exception to your comment-Most left voluntarily...and that BS. Actually, they were shown the door.

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50. Anonymous on August 22, 2013 5:59 AM writes...

"We will not become another Pfizer" - What a great mission statement!

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51. cliffintokyo on August 22, 2013 7:53 AM writes...

The financial gurus have got one thing right; big pharma firms are too big to be sustainable and too unwieldy for their own drug R&D mission (including Merck), as we all now recognize. So they can now just pay back all the fees they received for advising everyone (who was foolish enough to ask them what to do) to go on the merger and acquisition trail.
How to solve the problem? How about doing *better* (in all senses of the word) research?
How many of us could make that commitment NOW, when we are expecting to be shown the door at any moment?
BTW, I notice that Pfizer is now splitting up with a vengeance, into autonomous, empowered units, as I suggested they would, on this blog, several years ago. Ahem! Attention Merck!

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52. Anonymous on August 22, 2013 8:16 AM writes...

Roger just needs to dig into the archive and listens to what came out from Tillyer's mouth at those numerous webcasts. If Roger could stand one webcast, Roger is the same as Tillyer !!

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53. anonymous on August 22, 2013 8:18 AM writes...

@43 The 'current state of affairs' has many responsible parties and to primarily blame the 'analyst/consultant types' in my opinion lets the pharma leadership off the hook just a bit too much. This problem was decades in the making (and as such predating the BCG and McKinsey type influence) but the economic environment of the 1980's and 90's allowed companies to obscure it with (seemingly limitless) price increases to drive profits and fund an already inefficient R&D. With less ability to cover the gaps with price increases, pharma has failed to find a sustainable business model. And while I can't blame the business folks for the problem, I certainly can't credit them with a solution either.

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54. flem on August 22, 2013 10:52 AM writes...

Peter used committees to make decisions - that does not work well. Roger will go back to the Ed Scholnick approach. He will decide on compounds that become PCC, PCCs that go into man; and those that go to Ph3. I agree with this. There should be a focused vision in what MRL does.
He will be and must be accountable for all the company effort and spending in research. In the end its going to be science, intuition, and luck that will improve R&D productivity and innovation - that has to come from the top.

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55. Dr. Manhattan on August 22, 2013 1:35 PM writes...

#43 The business types believed that "change was good" but they changed what was good along with what was bad and have irreversibly damaged the research capabilities of the industry.

Yes, change was good, as long as it preserved their sorry asses. To hell with the people who actually invent the products.

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56. Carlos at Lacerta Bio on August 22, 2013 1:37 PM writes...

Cut costs and all will be well.

Sounds easy, right?

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57. Dr. Manhattan on August 22, 2013 1:39 PM writes...

#51. "So they can now just pay back all the fees they received for advising everyone (who was foolish enough to ask them what to do) to go on the merger and acquisition trail."

But, but...that means giving up the 7000 sq. ft. house in the Hamptons...and the vacation "cottage" in St. Tropez...and the Porsche. Oh, the humanity!

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58. anon for this one on August 22, 2013 6:32 PM writes...

#54 (flem? euphonious name...) Vagelos and Scolnick actually spoke to the scientists; research was initiated and defended by the scientists up the (limited number of) management layers. Scolnick was a tough personality to deal with; Vagelos more pleasant - but both were very strong scientists themselves. And [almost] every program was judged, throughout its life, on a scientific basis. And then came Kim...He talked only to his VPs - no one seems to have vetted the science. And then I left, on my own, soon thereafter. No wonder internal research has suffered! Perlmutter could get back in touch with the science. He has the skills. But things may be too far gone.

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59. Buzz Collins on August 22, 2013 7:56 PM writes...

I know where Judy is.

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60. flem on August 23, 2013 9:33 AM writes...

#58 Im not a scientist but I did get to observe albeit from afar the styles of each (not Vagelos who predated me). I agree Ed and Peter had very different styles - both antagonized different part of MRL. I can't speak to their scientific judgement. Obviously Ed made better choices then Peter, but Ed also cut loose stuff we should have kept. In both Marketing and R&D we know at least 80% of what we spend is wasted - we don't know which so we do it all - cuts will be made in both until the future profit needle changes direction. No amount of management "process" could do this this well. Roger was brought in to make sure we cut research fat and not muscle going forward. Others on this blog will no doubt believe this is not the right thing to do - but you cannot ignore the economic system we must live in. investment without profit is unsustainable

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