Merck & Co. CEO Frazier to exit, leaving CFO to optimize Keytruda, pipeline

Merck & Co. Inc.'s long-time CEO Kenneth Frazier will step down at the end of June after more than 10 years at the helm of the pharmaceutical giant.

CFO Rob Davis will take over as the company's CEO, marking a change in leadership that includes the retirement of Chief Scientific Officer Roger Perlmutter at the end of 2020.

Frazier — one of only four Black CEOs of Fortune 500 companies — started as a general counsel at the company in 1992. During his tenure at Merck, he transformed the company into a leader in the cancer space with the ubiquitous blockbuster Keytruda.

Keytruda brought in $4 billion in sales for the company in the fourth quarter, up 28% year over year. For the full year 2020, the cancer treatment collected $14.38 billion, up 30% from 2019, the company reported.

"Looking at both what we can do to extend the breadth of Keytruda's reach to the number of patients it serves as well as its efficacy through combinations, as well as broadening into other oncology fields and broader mechanisms, which we have — that all will continue to be where we will focus our efforts," Frazier said on the company's fourth-quarter and full-year earnings call Feb. 4.

For his swansong, the departing CEO is looking as far ahead as 2030 for both Keytruda and the company's slate of prospective drugs.

"So as we look at 2025 and beyond and into the 2030 time frame, it really is to continue to focus first and foremost on investing behind the best science, whether it comes from inside the company or outside the company, and execute on the pipeline we have," Frazier said.

The outgoing CEO also passes along the mantle of M&A that he said the company will continue to engage in to keep new technology flowing to the bottom line.

"We will need to continue to do business development to augment that, and we are committed to that — we've been pretty consistent in talking about the urgency we have around business development, and that hasn't changed," Frazier said. "That won't change — but what also won't change is we will do it when we see an alignment of strategy and value that is tied with our scientific endeavor."

Merck is spinning off its women's health and legacy products business into a new business called Organon in 2020 to focus on the pharmaceutical side, with the separation expected to be completed in the second quarter.

The CEO transition should keep Merck stable despite missing fourth-quarter expectations, Cantor Fitzgerald analyst Louise Chen said in a Feb. 4 note.

"We think the Street should look through this quarter and focus on the new Merck with Rob Davis as the CEO and without Organon," Chen said. "There is still a lot of value to be unlocked in Merck's pipeline, in our view."

New President of Merck Research Laboratories Dean Li said the company will continue to focus on cancer and vaccines as it moves into other areas as well.

"I wouldn't read into the transition that there would be any hesitation at all about taking steps that we believe are the right steps for this company's long-term success," Li said.

While Merck raised eyebrows in January when it discontinued development of its early-stage coronavirus vaccines, the company is continuing work on the antiviral treatment molnupiravir.

"Molnupiravir has the potential to play an important role in the current pandemic as well as other emerging novel coronavirus infections," Li said. "We have been scaling production capacity and expect to have over 10 million courses of therapy available by the end of 2021."

Fourth quarter, full year 2020

Merck reported total revenue of $12.51 billion for the fourth quarter. The pharmaceutical giant posted a GAAP EPS loss of 83 cents, below the S&P Capital IQ GAAP EPS estimate of $1.00 and down from 92 cents for the previous year.

The company reported a net loss of $2.1 million for the quarter, compared to net income of $2.36 million in the prior-year period. Total revenue came to $12.51 billion, a rise from $11.87 billion.

For the full year, the company reported profit of $2.78 per share, a 27% drop from $3.81 in 2019 and below the Capital IQ GAAP EPS estimate of $4.64. Total 2020 revenue came to $47.99 billion, an increase from $46.84 billion in 2019.