May 6, 2005
Chief Executive Quits at Merck; Insider Steps Up
By ALEX BERENSON
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Raymond V. Gilmartin resigned yesterday as chairman and chief executive of
Merck, ending a troubled decade-long term during which Merck lost its place
as the world's pre-eminent drug maker and was forced into a product recall
that has clouded its future.
Merck, the third-largest American drug maker, named an insider, Richard T.
Clark, 59, its head of manufacturing, as the new chief executive. Merck said
the chairman's position would remain vacant for at least a year.
After a six-month search, Merck's inability to find someone to assume both
of Mr. Gilmartin's titles highlights the deep problems it faces in his wake,
including a dearth of new drugs and thousands of lawsuits over Vioxx, the
painkiller that Merck stopped selling last year after studies linked it to
heart attacks. The search had been undertaken because Mr. Gilmartin
originally planned to retire next March, when he will turn 65.
Despite Merck's proud history and reputation for scientific excellence,
several executives outside the company reportedly turned down the chance to
run it, including Kevin W. Sharer, chief executive of Amgen.
Lawrence A. Bossidy, a longtime Merck director who led the search committee,
declined to say yesterday whether Mr. Clark had been the company's first
In place of a corporate chairman, Mr. Bossidy will act as chairman at board
meetings and lead a three-person executive committee that will advise Mr.
Clark. Mr. Bossidy, a former chairman of Honeywell, is a forceful executive,
and some analysts said they thought he had effectively taken control of
Merck. But Mr. Bossidy and Mr. Clark both said that Mr. Clark would run the
"There's no question that I am in charge," Mr. Clark said in a conference
call with reporters.
In a later interview, Mr. Clark said he expected to serve as chief executive
for at least five years and would stick to Mr. Gilmartin's policy of keeping
Merck independent. Mr. Clark said he planned to conduct a strategic review
of Merck's business but could not promise any specific changes.
As Merck's new chief, Mr. Clark will lead a company suffering from poor
morale, a lack of promising new drugs and a potential liability of $15
billion or more over Vioxx. Merck promoted Vioxx heavily despite years of
concern from outside scientists and its own researchers about the drug's
With just over five years before he reaches Merck's mandatory retirement age
of 65, Mr. Clark has limited options for major changes, analysts said.
Bringing new medicines to market is a slow process, so drug companies need
years to reverse their fortunes. And Merck lags other big drug makers in
licensing new medicines from biotechnology companies, which have recently
found more new treatments than traditional drug companies have.
Mr. Gilmartin will leave Merck and its board immediately but remain as a
special adviser to the executive committee, the company said. Mr. Gilmartin
said yesterday on the conference call that the board had not demanded that
he leave now.
"This is my choice," he said.
Mr. Clark said that he had immediately accepted when Mr. Bossidy offered him
the job on Wednesday at Merck's headquarters in Whitehouse Station, N.J.
"Being with this company 32 years, and this company being a major part of my
life, it was a great honor," Mr. Clark said. He will be paid $1.1 million
annually. He will receive 45,000 shares and 125,000 stock options this year
and 90,000 shares and 250,000 stock options next year.
Mr. Gilmartin earned $38 million last year in salary, bonus and Merck share
Average shareholders have fared less well. The stock price has fallen 60
percent from its peak in 2000 and 25 percent since the company recalled
Vioxx in September. Still, Merck remains immensely profitable, with 62,000
employees, $22 billion in annual sales and $6 billion in annual profit.
Mr. Clark's promotion received mixed reviews. Some analysts criticized the
succession plan, saying Merck needed a single leader to solve its problems.
In addition, Mr. Clark has no experience in drug marketing or research,
generally considered the two areas most crucial to drug makers.
"Clark spent a lot of time talking about how he is a change agent," Les
Funtleyder, an industry analyst at Miller Tabak, a small investment bank,
wrote in a research note. "He refused to say how they would change. Given
how much time they had to think about this, it is surprising how little they
were willing to share."
Merck shares ended the day at $34.75, down 18 cents.
Other analysts, though, said Mr. Clark was a strong executive who might help
unify Merck and was also expert at controlling costs.
"Mr. Clark may possess the personal attributes and the relevant experience
of a leader who is likely to relentlessly focus on improving the bottom
line," Tony Butler, a Lehman analyst, wrote in a research note.
Still, Mr. Clark did not seem fully in control during his first day as chief
executive. In a conference call with reporters, Mr. Bossidy answered most
But in an interview afterward, Mr. Bossidy said he and the other members of
the three-person executive committee would be only advisers. Mr. Clark will
run Merck, Mr. Bossidy said.
"He's going to be the one who's held accountable," he said. "In terms of
operating decisions, he has full authority." Mr. Bossidy said Mr. Clark
would be the leading candidate to become Merck's chairman within a year to
18 months. In the interim, Mr. Clark will have the executive committee to
help him work through Merck's problems, Mr. Bossidy said.
"It's unfortunate that because he didn't answer all the questions in detail
today that people conclude that he's just not going to do anything," Mr.
For Mr. Gilmartin, yesterday's announcement ends years of failure. Mr.
Gilmartin is widely liked personally, but his tenure at Merck has been
little short of disastrous. When he became chairman and chief executive in
1994, the company was considered the most innovative big drug company in the
world, renowned for the quality of its research.
But Mr. Gilmartin, who joined Merck from Becton-Dickinson, a much smaller
medical products company, never gained full control. Merck's research labs
were run by Dr. Edward M. Scolnick, a brilliant and irascible scientist whom
many people inside Merck viewed as the company's real chief before his
retirement in 2002.
After finding new treatments for H.I.V., osteoporosis, cholesterol and
asthma in the 1980's and 1990's, Merck's labs have hit a dry spell in the
last few years, with several drugs failing in the late stages.
In addition, Merck repeatedly failed to meet its financial projections to
Wall Street and lost a crucial patent lawsuit over Fosamax, its osteoporosis
treatment. The biggest blow to the company came in September, when Mr.
Gilmartin announced that Merck would stop selling Vioxx.
Last December, as criticism of Mr. Gilmartin grew on Wall Street and among
scientists, he asserted in an interview that he would not step down before
his planned retirement next March. Yesterday, Mr. Gilmartin offered only a
vague explanation for his change of plans, saying he did not want to
interfere with an orderly succession.
"I'll help in this process any way that I can," he said.
Marketing of Vioxx Challenged
By The New York Times
WASHINGTON, May 5 - A Merck executive faced hostile questions Thursday from
a Congressional committee about the company's past marketing tactics for the
The committee released internal Merck documents that had instructed sales
representatives to reassure doctors that Vioxx was not a threat to the
"Merck's sales representatives were trained to sell as if lives depended on
it," said Henry Waxman, a California Democrat. "Ultimately, their message
may have cost lives."
Mark Souder, an Indiana Republican, said, "The real question we want to know
is, Can we trust you?"
Dr. Dennis Erb, a Merck vice president, defended Merck, saying, "I believe
in the safety of Vioxx."
Dr. Erb said Merck was in preliminary discussions with the Food and Drug
Administration about what information the agency would require before
considering whether to let Vioxx back on the market. Merck has not decided
whether to seek that approval, he said.