CEO: Risks key for Merck to succeed, help patients

Monday - 3/4/2013, 5:16pm EST

LINDA A. JOHNSON
AP Business Writer

NEW YORK (AP) -- Merck & Co. CEO Kenneth C. Frazier is convinced nearly everyone, from patients to long-term investors, wants the world's third-largest drugmaker to take big risks.

So Merck is plunging ahead in one of medicine's toughest challenges -- finding a drug to slow Alzheimer's disease -- despite repeated failures that have led most drugmakers to halt or scale back research on the No. 6 killer in the U.S. It's a particularly risky strategy because scientists are still unraveling exactly what drives Alzheimer's.

"When people question me (and ask) 'Aren't you putting a lot of money at risk for something that's hard?' I say, 'Isn't that exactly what the world wants a company like Merck to do?'" says Frazier, 58.

The company, based in Whitehouse Station, N.J., is taking risks even though it, like other major drugmakers, is being squeezed by the weak global economy, cuts in health care spending by governments, rising research costs and increased competition from cheap generic versions of drugs that once brought in billions.

Merck is pouring tens of millions into an experimental treatment for a new type of Alzheimer's drug meant to limit the main ingredient in the brain-damaging plaques believed to cause the disease. If it works, it could be the first drug to slow patients' mental and functional decline.

Roughly 100 Alzheimer's drugs have failed in the last couple decades. And the handful of medicines that have been approved only temporarily ease symptoms.

The Alzheimer's gamble is partly personal for Frazier, a Harvard-trained lawyer who became CEO in January 2011 after 19 years in various executive positions at Merck. His father, a janitor who raised Ken and his siblings in Philadelphia, died of Alzheimer's. Frazier and his wife had cared for him in their suburban Philadelphia home during his final years.

"My father, to me, was 10 feet tall," says Frazier, whose mother died when he was very young. "To see this disease take away his brain and to see him rendered like a child, it was devastating."

This isn't the first time Frazier has taken a big chance. After Merck pulled painkiller Vioxx off the market in 2004 because it doubled heart attack and stroke risks, Frazier, then Merck's general counsel, decided to fight about 50,000 patient lawsuits one by one, instead of negotiating a mammoth settlement covering most of them.

The strategy paid off. Merck won enough trials that, after four years of litigation, it was able to persuade plaintiffs' lawyers coordinating the cases to settle nearly all the lawsuits for $4.85 billion. That's a fraction of the $20 billion to $50 billion in liability analysts had initially predicted.

Merck's research bets haven't always paid off, though. The maker of Type 2 diabetes drug Januvia had a few promising drugs fail in tests recently. Among them were the highly touted cholesterol drug Tredaptive and a combo pill for patients with diabetes and high cholesterol called MK-0431E.

Still, the company, which has annual revenue of about $50 billion, got five medicines approved in the U.S. in 2011 and 2012, including breakthrough hepatitis C drug Victrelis. Merck also expects to apply for U.S. approval of five drugs in 2013: two allergy medicines, an anticlotting drug, a fertility treatment and an improved version of Gardasil, a vaccine that prevents sexually transmitted cancers. Other drugs already are under review, for conditions including insomnia and hardening of the arteries.

In an interview at The Associated Press headquarters in New York, Frazier talked about his plans for Merck, the future of the U.S. health care system and his meeting with President Barack Obama. Below are excerpts, edited for length and clarity:

AP: After your 14 years as a private practice attorney working with pharmaceutical clients, why did you choose to come to Merck?

FRAZIER: If you worked for Merck, you knew you were working for a company where scientists were driving the company strategy. The core of my job is to keep that cadre of world-class scientists going.

AP: What's your top accomplishment in the two years since you took over as Merck's chief executive officer?

FRAZIER: My biggest accomplishment is staying the course, I would say, at a time when investors are increasingly skeptical of pharmaceutical research and development. We are one of the companies that didn't cut our research budget. We said we weren't going to do that, and our stock got pounded initially. (The stock price fell 17 percent in barely 9 months, then steadily rebounded, climbing from just under $30 to around $43 now.) I'm feeling a lot better about it than I was a year ago.