Manufacturing head takes Merck top spot as Gilmartin quits

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The sudden departure of Merck & Co's chairman and chief
executive, Raymond Gilmartin, last week brings into sharp
perspective the difficulties facing the ailing US drugmaker,
reports Phil Taylor.

Gilmartin's tenure of the post has been put into question ever since the market withdrawal of the firm's COX-2 inhibitor drug Vioxx (rofecoxib) last autumn, a development that sent the firm's share price plunging.

Merck, once the top-ranked drugmaker before the string of mega-mergers that have occurred in the latter half of the 1990s and 2000s, has had a tough time of it of late. Gilmartin has been at the helm for 11 years, and leaves his post a year before he was due to retire. Merck has insisted that Gilmartin was not forced out.

Following his departure, Richard Clark has been elected CEO and president, as well as a member of the Merck board. Clark is currently president of the company's manufacturing division and previously served as chairman and CEO of Medco Health Solutions. The position of chairman has been left vacant, prompting speculation - denied by the company - that Clark may be in the position on an interim basis while a new candidate to take on both roles is found.

Last year's withdrawal of the prescription painkiller Vioxx (rofecoxib) after it was linked to a higher risk of cardiovascular problems than other non-steroidal anti-inflammatories, as well as some diminishment in its pipeline, has weighed heavily on Merck. Aside from the immediate impact of losing Vioxx revenues which at their height reach $2.8 billion (€2.18bn) a year, the US company is also facing lawsuit and legal charges which some analysts have predicted could reach the double-digit billion dollar level.

Gilmartin's resignation comes as US congressional investigators are examining documents alleging that Merck continued to aggressively promote Vioxx after it knew of potentially serious safety concerns.

Merck also suffered the indignity earlier this year of rumours that it was at risk of bankruptcy - a state of affairs that would have been unthinkable in the early 1990s when its product portfolio and pipeline were second to none in the industry. The firm has ridden the Vioxx withdrawal to some extent, still managing to hike its first quarter revenues slightly to $5.7 billion, although net income slumped by more than a fifth to just over $1 billion.

Last December, Merck announced a series of job cuts as part of a restructuring exercise aimed at carving $3 billion off its costs by 2008 and getting its finances back on track. The number of jobs has been estimated at 5,100, saving $300 million a year in payroll costs. Other planned savings to 2008 included $1.2 billion from procurement changes, $300 million from inventory reduction, $600 million from capital initiatives and additional savings in manufacturing costs

Merger question

In recent years, Merck has consistently let down those investors who see a merger as the answer to the drugmaker's problems, and Gilmartin often argued that this route would not add to the company's product pipeline or contribute to long-term growth.

The elevation of a Merck insider to the top slot suggests that this position may not change in the near future, although in a conference call Clark did not rule the possibility out. Merck has been repeatedly married to fellow US drugmaker Schering-Plough by the pharma industry rumour-mongers, as the two firms are already collaborating in the area of cholesterol-reducing drugs.

New executive committee

Meanwhile, Merck's board also announced last week that Lawrence Bossidy, former chairman and CEO of Honeywell International, will serve as chairman of its newly-structured executive committee and will work closely with Clark to provide support and continuity as he assumes his new duties. This committee is expected to be in place for one to two years.

Gilmartin realised $34.8 million in stock options last year, as well being paid a $1.38 million bonus despite the Vioxx situation. He will continue to serve as a special advisor to the committee, according to Merck.

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