Merck: Embracing Externalization, From the Top Down

Updated Below. One business magazine greeted the tenure of Dick Clark as Merck's new CEO in 2005 with the instruction to "say hello to boring," Roger Longman reminded the audience today at PSA. Investors will be clamoring for more boring if that's what has spurred Merck's shareprice onward and upward over the past two years.

Our Pharmaceutical Strategic Alliance conference kicked off this morning with Roger's Q&A with the Merck CEO, in a discussion that focused on the changes implmented by Clark over the past two years and the challenges faced both by Merck and the industry as a whole.

Clark said many of the things you'd expect a CEO to say. He talked about putting patients first, talked about unmet needs and striving to discover and develop strongly differentiated products. He acknowledged the industry's regulatory challenges and difficult reimbursement environment. And he deflected much of the credit for Merck's recent success to the pharma's employees in general and the interdisciplinary, horizontal and empowered teams that were behind the success of recent launches of Januvia and Gardisil in particular, as well as the timing of his appointment, suggesting his predecessor Ray Gilmartin had put necessary processes in place that have helped the company succeed today, not least hiring Merck's current research head Peter Kim.

And while the executive has spent his entire working life at Merck, he credits his several years at Medco--then Merck's PBM subsidiary--with providing him an external perspective on the company that once felt that the only good science was the science done in its own laboratories.

Externalization, both as an industry meme and in practice at Merck is becoming more important. "Medco allowed me to take an outside-in approach at Merck," Clark says. It's an approach that has more or less been embraced company wide. Only a few years ago, Clark noted, Merck did only a handful of licensing deals per year. "Last year we did something like 53," he said, pointing out acquisitions like the recent NovaCardia deal, and large molecule platform building moves like buying GlycoFi, Abmaxis, and Sirna. Scientists and managers within Merck are no longer rewarded based soley on what they can develop and create in-house, but for what they can bring into the company from the outside as well.

And there is still a ways to go, says Clark. "It’s important to understand that Merck hasn’t declared victory yet, that we’re about 40% of where we want to be and there’s still a lot of work to do." The danger, he says, is to revert to an internal focus.

Commenting on the $1.1 billion acquisition of Sirna in the RNA interference space, Clark emphasized the importance of continuing to augment its platform with the best available technologies. "I don’t think it ever ends, the external focus has to continue. If you raise your hand and write a billion dollar check," you need to make sure you're putting the right tools to work to execute your strategy.

UPDATE: The WSJ's Health Blog dropped by this morning. You can read their take on Clark's talk here.