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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 1, 2013

Merck Cuts Back. Way Back.

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Posted by Derek

I've been stuck underground on a stalled subway train, but the rumor that was passed on to me last night turns out to be true: Merck is doing some big, serious cuts. They're cutting back about 20% worldwide, and it's going to hit every part of the company. More details as they become available. . .

Comments (113) + TrackBacks (0) | Category: Business and Markets


COMMENTS

1. annon8 on October 1, 2013 8:57 AM writes...

..I've been stuck underground on a stalled subway train! That pretty much sums it up for Merck! They have been stuck for the past 8+ years. No one has a clue as to how to extricate Merck from this morass. Perhaps, it is much more easier to layoff the people, shut down the government etc. Arrggh!

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2. Anonymous on October 1, 2013 9:00 AM writes...

Summit site is closing, emerging markets initiative dead...

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3. bhip on October 1, 2013 9:12 AM writes...

Best wishes to all my friends at Schmerck....

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4. Anon on October 1, 2013 9:16 AM writes...

But we need to train more PhDs and MSs!

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5. anonymous on October 1, 2013 9:36 AM writes...

Problem is easy to fix. Find a CEO with the passion for research and drug discovery like Roy Vagelos. A research company should be run by a scientist, because scientists discover drugs not business people.

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6. SteveM on October 1, 2013 9:57 AM writes...

I know little about Ken Frazier, but when has a lawyer ever led a technology company (or any company) to greatness?

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7. fourtytwo on October 1, 2013 9:59 AM writes...

Re: #5

The problem is anything but easy to fix. If it was, the whole industry wouldn't be headed in the same direction. I also know from my time at Pfizer that some scientists make a pretty lousy job of running businesses.

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8. The Aqueous Layer on October 1, 2013 10:09 AM writes...

Problem is easy to fix. Find a CEO with the passion for research and drug discovery like Roy Vagelos. A research company should be run by a scientist, because scientists discover drugs not business people.

There are quite a few folks that think the scientist running Lilly isn't exactly doing a bang-up job down there, despite coming from the scientific ranks...

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9. DA Evans on October 1, 2013 10:17 AM writes...

Fantastic (irony here) !! can't wait to here details of the carnage.

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10. Anonymous on October 1, 2013 10:21 AM writes...

The industry's problem is very easy to fix: Bring back all the people that have been cut, fire all the people that were kept. Because doing the opposite of every management decision is probably the best thing for each company.

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11. Goldmember on October 1, 2013 10:24 AM writes...

Hey, here's how Merck can resuscitate its dying body: by, you know, actually doing research.

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12. petros on October 1, 2013 10:28 AM writes...

Does bringing in R&D heads from academia actually deliver? Peter Kim's tenure at Merck seems to have had few positives

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13. Lunar landing on October 1, 2013 10:31 AM writes...

@#6 another case of generational amnesia. John Horan was a former CEO of Merck during some very good times for the compan and he was an attorney.. Not defending lawyers here just questioning your understanding of history. Also there are a lot of pharma companies being run by scientists that are not doing well. Really has to do with vision not so much with profession.

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14. Chrispy on October 1, 2013 11:04 AM writes...

It appears that 20% of the company has lived up to Perlmutter's mandate to bet their jobs. Clearly he is an inspiration.

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15. Anonymous on October 1, 2013 11:09 AM writes...

It seems to be musical chairs as to where the HQ will be. Readington, Summit, Kenilworth... where next? Resurrect Newhouse,UK? It seems like management is in chaos.

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16. Boner on October 1, 2013 11:11 AM writes...

What ever happened to Odanacatib?

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17. Anonymous on October 1, 2013 11:14 AM writes...

Merck's next HQ
http://breakingbad.wikia.com/wiki/The_RV?file=RV.jpg

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18. Anonymous on October 1, 2013 11:16 AM writes...

Merck's next HQ could be a Fleetwood Bounder.

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19. David Formerly Known as a Chemist on October 1, 2013 11:37 AM writes...

How do you make your pharma company more competitive and more responsive to patient's needs? Slash R&D!

"These actions will make Merck a more competitive company, better positioned to drive innovation and to more effectively commercialize medicines and vaccines for the people who need them," said Kenneth C. Frazier, chairman and chief executive officer, in a statement. "Today's announcement further underscores that we are committed to improving our performance in the short term while also investing for the long term to create value for patients, customers and shareholders."

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20. Lyle Langley on October 1, 2013 11:55 AM writes...

Rahway or West Point? West Point or Rahway? One will be closing and the good money is on Rahway.

At #5,

I know it's the rose colored glasses that get put on by the scientists on this website that all Pharma needs is a good ole fashioned scientist CEO. Unfortunately, that's not the answer. Yes, if one could bring back Dr. Vagelos, that would be a good start - however, unless we are also brining back the investors of the same time, it's not going to do anyone any good. Scientists as CEO's are not the panacea - ask Lilly.

Really want to bring about change? Pool all of your resources and buy Merck (or any other Pharma) and go private. Then, and ONLY then, will the scientists/business people have control over the business. Any other scenario that still includes the NYSE/Nasdaq is a fools play.

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21. Anonymous on October 1, 2013 11:56 AM writes...

Clearly Frazier's bonus is tied to short term profit targets. And since he'll be gone with his huge bonus check and retirement package within a few years, why would he care if Merck has no future beyond that?

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22. Hap on October 1, 2013 12:17 PM writes...

Translation: "We need food now, so if we cut off our left leg, we'll have enough food for awhile and we'll be able to hunt better in the future. After all, we may not know anatomy, but our cavemates don't really care."

This can only work out well, right?

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23. Curious Wavefunction on October 1, 2013 1:02 PM writes...

I think Anthony Nicholls's of OpenEye put it quite well in his post on the site:

"I have come to believe (and I admit that this is only a theory) that as more and more of pharma’s budget was funneled into advertising and direct marketing to both the general public and to doctors themselves, the path to the top in pharma ceased to be via the lab bench and instead was by way of Madison Avenue. So where do I get this idea? Let’s look at a few examples. When I first started visiting AstraZeneca (then just Zeneca) in the mid-1990s, it was run by Sir Tom McKillop. McKillop, a PhD in chemistry, had formerly been technical director at ICI, the company that de-merged to produce Zeneca. Stories abound about him stopping by to discuss chemistry with researchers (including tautomerism with our good friend Peter Kenny!). But who succeeded Sir Tom? David Brennan. And where did he come from in the organization? Sales. GSK’s Andrew Witty rose up the ranks from that company’s sales and marketing department.

Jeff Kindler of Pfizer is a lawyer who had replaced another business man, and who has recently been replaced himself by an accountant. Before 1994, Merck’s CEO was Roy Vagelos, a scientist with 100 publications and a member of the National Academy of Sciences. After a variety of business types, Merck’s most recently elected CEO is Kenneth Frazier, a lawyer.

You would think (or at least hope) that pharma would learn its lesson from other industries. Remember John Sculley? He ran Pepsi until he was brought in by Steve Jobs to run Apple in 1983. In ten years of running the company Sculley increased sales from $800M to $8B. Great, except that he fired Steve Jobs and nearly destroyed the company. Like today’s pharma CEOs, he knew a lot about selling but not much about what he was selling."

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24. anonymous on October 1, 2013 1:07 PM writes...

Medicine is all about credibility to physicians. Merck seems to have lost some credibility. The way to get it back is focus on the best research to make the best medicines. A scientist CEO, if picked properly, could only help bring back credibility in the medical community. Lest we forget that medicine is for the people...

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25. Anonymous on October 1, 2013 1:09 PM writes...

at #20,
German Merck Serono is privately held, but it is as much in the innovation crisis as any other big public pharma company. Altough the idea is attractive.

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26. Anonymous on October 1, 2013 1:10 PM writes...

at #20,
German Merck Serono is privately held, but it is as much in the innovation crisis as any other big public pharma company. Altough the idea is attractive.

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27. Chemjobber on October 1, 2013 1:32 PM writes...

I would really like to believe that what we need is 1) CEOs who have been scientists and 2) businesses that are free of the pressures of Wall Street.

However, those who say that we need scientist-CEOs can point to Regeneron's leadership and Roy Vagelos. I suggest that Lechleiter at Lilly (former process chemist) and Tom D'Ambra at AMRI (former med chemists) are evidence that chemists can be mixed bags at leadership as well. I'd welcome evidence to the contrary.

Also, Boehringer Ingelheim had layoffs during the Great Recession, yes? (although not to the same degree? I do not know either way.).

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28. Anonymous on October 1, 2013 1:37 PM writes...

Glycofi is being sold...

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29. Anonymous on October 1, 2013 1:41 PM writes...

HQ is being relocated to Kenilworth, Summit is closing and jobs will be strewn around NJ and PA.

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30. Anonymous on October 1, 2013 1:51 PM writes...

Isn't slashing R&D a bit like kicking out the farmers so that there are fewer mouths to feed?

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31. Lyle Langley on October 1, 2013 2:16 PM writes...

@25 (26);

No doubt that privately held companies are not free from issues; but they are the only way to be free of Wall Street. The CEO is beholden to the share holders, and with the investor attitudes of today, I believe it would be a very "special" scientist CEO to turn the tide. Such a "special" person does not need to be a scientist either, just those CEO's are very hard to find.

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32. Goldmember on October 1, 2013 2:34 PM writes...

We don't absolutely *require* scientists at the helm; MBAs or lawyers who actually bother to bring themselves up to speed on the science, have long-term vision and understand scientists' needs would also do.

Unfortunately that species is non-existent. Today's MBA's and lawyers have been almost exclusively trained in the fine art of value inflation and fakery and their main goal is to make sure they get their $10 million bonus and make a quick exit.

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33. Dave on October 1, 2013 2:36 PM writes...

Purdue Pharma is another privately held pharma company that has faced challenges similar to the publicly traded ones.

@14 Christy - Loved your comment! "It appears that 20% of the company has lived up to Perlmutter's mandate to bet their jobs. Clearly he is an inspiration." Can't wait to share it with colleagues.

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34. NoDrugsNoJobs on October 1, 2013 2:47 PM writes...

To focus simply on the CEO is a bit of a red herring. Merck's CEO did not create the regulatory, legal and pricing environment we find ourselves in. Its getting harder and harder to find drugs that can advance the standard of care in many areas as that standard of care has risen.

The regulatory environment today is many times more perilous than past generations and that is why you might have observed so many of your former co-workers are now in regulatory or have gone into legal or elsewheres, thats where the jobs are at. These days a pharma business must be able to convince payors that the drug will merit the use and this is not easy to do - it requires ever increasing clinical study sizes and much riskier and harder to meet criteria. The fda has not grown softer, they have rejected many drugs that would have been a shoo in a couple or three decades ago.

Pharma companies of all stripes must comply with millions and millions of pages of increasingly byzantine regulations related to all aspects of their business, compliance costs are through the roof. Fines assessed against the major pharma companies routinely now run into the billions with no relief in sight. All of these things make our drugs more and more expensive without making them much better I surmise.

Its a different world. One may wax sentimental for the good old days when scientists ran things but the reality is, a lawyer is probably as or more appropriate at the helm as a scientist due to all of the non-drug discovery related factors that are crushing the business model. I don't like it all but as good as it might feel to blame this CEO or that CEO, the reality of our situation is so much more daunting and complex. Nothing short of a dramatic reorganization of the entire drug approval and regulation process will save us from further carnage.

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35. Anonymous on October 1, 2013 2:47 PM writes...

@24 Curious Wavefunction

Sir Tom Mckillop also made a complete arse of running the Royal Bank of Scotland. The biggest loss in UK corporate history. Yes these 'superstars' should just stick to what they know.

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36. Vulgar on October 1, 2013 3:12 PM writes...

Still can't believe the scale and rapidity of what has befallen Merck over the past few years. Now resembles a rump organisation with a pretty hollow sounding survival plan.
Kinder to break up and provide a chance for at least part of its legacy to survive?
When the history of the Industry in the 21st Century is written.....

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37. Volpar on October 1, 2013 3:13 PM writes...

Still can't believe the scale and rapidity of what has befallen Merck over the past few years. Now resembles a rump organisation with a pretty hollow sounding survival plan.
Kinder to break up and provide a chance for at least part of its legacy to survive?
When the history of the Industry in the 21st Century is written.....

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38. Lyle Langley on October 1, 2013 3:16 PM writes...

@34, NoDrugsNoJobs...
"Fines assessed against the major pharma companies routinely now run into the billions with no relief in sight."

Poor, poor Pharma. They are just simply going about their business and get hit with these fines. It's not like they were doing anything illegal/unethical to incur those fines.

Plus, it's not like Pharma doesn't have departments in DC just to keep track of these "byzantine" regulations. No, they, again, are simply at the mercy of the regulators and their department of 2 people just can't handle the workload.

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39. Objective on October 1, 2013 3:16 PM writes...

I like DL's optimism reflected in the title "Merck Cuts Back. Way Back."

There is so much DEADWOOD at companies like Merck. a 20% cut will not move the needle either way.

Its best that these large conglomerates focus on Manufacture and marketing. Which means there is no need for any active research within Merck (not that they know how to do that!). Only the Licensing group, Manufacture and Sales - should make up Merck. Roger would be better off helming the Licensing group, evaluating and bringing in advanced assets exclusively (post Phase-IIB). Research should be done at small biotech outfits (in collaborations with Universities if needed).

the glory days of Merck will return. Kapishh !!

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40. Matthew Herper on October 1, 2013 3:24 PM writes...

#8 and #20: Vagelos is unique -- it's not just Merck that is evidence of that, but also Regeneron and Theravance. But just because Vagelos and Art Levinson made good CEOs doesn't mean all scientists will make good CEOs.

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41. Anonymous on October 1, 2013 3:29 PM writes...

"There is so much DEADWOOD at companies like Merck. a 20% cut will not move the needle either way."

Yes it will: they'll do 20% less, but still be just as inefficient, if not more, because large-scale cut-backs like these *never* manage to pick out the deadwood scattered and hidden through every unit.

"Only the Licensing group, Manufacture and Sales - should make up Merck. Roger would be better off helming the Licensing group, evaluating and bringing in advanced assets exclusively (post Phase-IIB)."

So if they're going to buy in fully developed assets at full market price (expected cash flows plus premium, as other companies compete for these assets), how and where do they create value, exactly?

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42. Objective on October 1, 2013 3:52 PM writes...

@41. let the business types figure that out. look at Valeant for ex.

In today's world there is no benefit for companies like Merck to maintain large, obese R & D units. They only hold you hostage from a value creation point of view.

Ground breaking and Ballsy research can only be done in an enterprising small biotech environment (generously speaking). Merck can identify and put their hooks into these outfits and bring value to their pipeline (only late stage).

This will vitalize drug discovery and might....

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43. Anonymous on October 1, 2013 4:00 PM writes...

So who will fund the need for more biotechs? Big Pharma? You think any biotech will want to be controlled from the start by Big Pharma? And do you think pharma-controlled biotechs will be any more successful than big pharma R&D teams?

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44. Hap on October 1, 2013 4:02 PM writes...

And how do they figure out which assets to pick up? Even when companies try to accurately choose assets (especially undervalued ones), the inherent unpredictability of trial outcomes and the underlying activities and disease knowledge (and decreased knowledge of other people's assets) tends to rear its ugly head. That's (of course) when someone in upper management doesn't decide to ignore the data they do have and throw $700M at an asset because it looks so shiny and cool.

You'd have to figure a way to get rid of those expensive workers while keeping money flowing reliably to all those marketers (the ones that p!*&@ed the FDA off and helped increase the safety and financial barriers to drug approval) and upper management (the guys in the lifeboats waving to the passengers) would be like catnip to business types, if such a method existed.

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45. Anonymous on October 1, 2013 4:07 PM writes...

22% hit in people in WP

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46. MoMo on October 1, 2013 4:15 PM writes...

If they get rid of the right 20%, those who do not innovate, can't make a decision when needed or impede the honest and hard working mem and women of Merck, they won't even be missed.

They probably could have upped that number to 40%.

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47. Anonymous on October 1, 2013 4:36 PM writes...

@46: Unfortunately, the non-performers tend to be in middle management, who are also the ones asked to identify and cut out the non-performers.

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48. Clueless on October 1, 2013 5:33 PM writes...

after all those layoffs, have they and we learned anything?

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49. Anonymous on October 1, 2013 5:52 PM writes...

@48: Yes - Pharma is caught in a death spiral.

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50. Anonymous on October 1, 2013 6:00 PM writes...

Didn't Peter K and Kathleen M say years ago that BRGOS was the guarantee of the future of the company? Didn't they get rid of all the "dead wood", cough cough, I mean "experienced" scientists that the MBAs told them were costing the bottom line too much $$$ in terms of salary and benefits because they didn't "fit" the "new model"? Wasn't replacing them with a combination of cheap WuXi FTEs, recent graduates and hourly paid temp scientists from the bottom feeding "scientific staffing companies" the key to future? Weren't all the young prima donas /self=promoters that remained and assumed most of the senior positions of responsibility going to innovate and fix research? With such a novel, visionary plan, what went wrong?

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51. Dr. Manhattan on October 1, 2013 6:31 PM writes...

"There are quite a few folks that think the scientist runn