Merck's Chief Steps Down; Company Insider Replaces Him

Merck's Chief Steps Down; Company Insider Replaces Him
By ALEX BERENSON

Raymond V. Gilmartin resigned as chairman and chief executive of Merck today, 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 drug recall that has clouded its future..

Merck, the third-largest American drug maker, named an insider, Richard T. Clark, its 59-year-old 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 that the company 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.

Mr. Gilmartin had 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, the chief executive of Amgen.

Lawrence A. Bossidy, a longtime Merck director who headed the search committee, declined to say today whether Mr. Clark was the company's first choice.

In place of a corporate chairman, Mr. Bossidy will act as chairman of the board meetings and head a three-person executive committee that will advise Mr. Clark. Mr. Bossidy, the former chairman of Honeywell, is a forceful executive, and some analysts said they believed he had effectively taken control of Merck. But Mr. Bossidy and Mr. Clark both said today that Mr. Clark would run the company.

"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 that - true to Mr. Gilmartin's long-stated policy - would not merge Merck with another big drug maker. 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, which, Merck promoted heavily despite years of concern from outside scientists and its own researchers about the drug's risk. .

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. Because bringing new medicines to market is a slow process, drug companies need years to reverse their fortunes. And Merck lags behind other big drug makers in licensing new medicines from biotechnology companies, which recently have found more new treatments than conventional drug companies.

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 today on the conference call that his decision to leave now was not demanded by the board.

"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," he said.

Mr. Clark will be paid $1.1 million annually and receive 45,000 shares and 125,000 stock options this year and 90,000 shares and 250,000 stock options next year.

Merck's shares have fallen 60 percent from their peak in 2000 and 25 percent since the company recalled Vioxx last September. Today, Merck's shares slipped 18 cents to close at $34.75 on the New York Stock Exchange.

Still, Merck remains immensely profitable, with 62,000 employees, $22 billion in annual sales and $6 billion in profits.

Mr. Clark's promotion received mixed reviews. Some drug industry analysts criticized the succession plan, saying that Merck needed a single leader to solve its problems. In addition, Mr. Clark, who has worked at Merck since 1970, 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."

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, an analyst at Lehman Brothers, wrote in a research note.

Still, Mr. Clark did not seem fully in control during his first day as chief executive. In the conference call with reporters, Mr. Bossidy answered most questions.

But in an interview afterwards, 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 to act in terms of the company."

Mr. Bossidy said that 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. Bossidy said. "It's just not right."

For Mr. Gilmartin, today'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 of Merck 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 of the drug maker. 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 during the 1980's and 1990's, Merck's labs have hit a dry spell for the last several years, with several drugs failing in late-stage development.

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.

* Copyright 2005 The New York Times Company