Merck CEO Resigns, Replaced by Insider

Merck & Co. Inc. (MRK) on Thursday named a company insider to replace embattled Chief Executive Raymond Gilmartin, a move that was greeted with little enthusiasm by investors who had hoped for a high-profile outsider to turn the drugmaker around.

Richard Clark, 59, currently president of Merck's manufacturing division, will take over for Gilmartin, who resigned. Clark was previously CEO of Medco Health Solutions Inc. (MHS), the pharmacy benefit management company spun off by Merck (search).

Industry experts said Clark is a safe but uninspired choice who lacks the marketing and drug development experience to quickly restore Merck's earnings growth and reputation as one of the world's most innovative drug companies.

"The bottom line is that Clark is not a drug guy, and Merck is a drug company," said OrbiMed Advisors analyst Trevor Polischuk. "He's like Pope Benedict. He's a caretaker until Merck establishes where it wants to go."

Gilmartin stepped down ahead of his scheduled retirement in 2006, following Merck's withdrawal of its arthritis drug Vioxx (search) last September and its failure to produce enough new drugs to offset those losing patent protection.

Vioxx was withdrawn after a study showed the medicine doubled the risk of heart attack and stroke. The news wiped $25 billion from the market capitalization of the Whitehouse Station, N.J.-based drug company the day it was announced.

A Merck official on Thursday told a Congressional panel the company had not yet decided whether to reintroduce Vioxx for limited use by patients.

Clark is unlikely to make significant changes at Merck, analysts said.

"I think highly of Clark, but he's basically a consolation prize because Wall Street wanted new blood, and he's a Merck insider," said Deutsche Bank analyst Barbara Ryan.

Clark said on a conference call he will not ignore innovation, but did not immediately signal any major changes in strategy.

"We will be focused on internal growth as well as external growth through licensing" of products from other companies, Clark said. "You have to remember I was born and raised at Merck, and understand that scientific excellence is the future of the company."

Merck has been one of the slowest of the big drug companies to acquire new medicines from the outside — either through licensing deals or acquisitions. Instead, it has insisted on relying on its own internal research.

Merck has failed in recent years to launch many big-selling products, with the exception of two new cholesterol drugs it is co-marketing with Schering-Plough Corp. (SGP) Now it is racing to form as many partnerships as possible, but those results may not become apparent for several years.

In the meantime, earnings have fallen and are expected to drop further through 2007, as revenue from new drugs is unlikely to offset lost sales of its biggest product, the cholesterol drug Zocor, which begins facing generic competition next year.

"You have to think they couldn't get a superstar CEO from outside the company. Nobody would take the job," said Oppenheimer & Co. analyst Scott Henry.

Others were more upbeat.

"Some investors love celebrity CEOs coming from the outside," said Pat McGurn, special counsel with Institutional Shareholder Services, an adviser to large investors on corporate governance and proxy voting issues. "But the odds of those being a success are slim. The chances of a smooth transition are much stronger when you promote from within."

Moreover, Clark will have a powerful adviser in Lawrence Bossidy, a board member and former chief executive of Honeywell International Inc. (HON) appointed to lead a new executive committee that will act in place of a chairman. Merck said it does not expect to name a chairman for up to two years.

Clark has led Merck's manufacturing operations in multiple countries. He became Medco president in 2000 and was named chairman and CEO of the unit in 2002. Medco was spun off from Merck in March 2003.

Gilmartin joined Merck as president and CEO in June 1994, and was named chairman in 1994. He joined Merck after serving as CEO of Becton Dickinson and Co. (BDX)

Merck shares on Thursday closed down 18 cents to $34.75 on the New York Stock Exchange.