Merck World GHH Reorganization Story

Credit: Merck

A Dose of Optimism

The new CEO of pharmaceutical giant Merck, Kenneth Frazier ’78 is driven by high hopes for the company and what it can do

In March, a New York Times front-page story cataloged the woes besetting the pharmaceutical industry, including losses of billions of dollars from expiring patents, a dearth of promising new drugs, pressure to reduce prices, and layoffs in research and development. One analyst called it a time for panic in the industry.

Kenneth Frazier ’78 was named CEO of Merck in January.

Credit: Merck Kenneth Frazier ’78 was named CEO of Merck in January.

But on the day the news hit, Kenneth Frazier ’78 didn’t seem panicked, even though he had recently taken the helm of one of the world’s biggest pharmaceutical companies. Named CEO of Merck in January, Frazier said that the company has existed for more than 100 years and is not about to change its core mission of translating science into medically important products. Some of those products can take up to 20 years to develop, so it’s an industry in which one is well served to take the long view, he said. That is what he intends to do, emphasizing research and innovation at a time other companies are scaling back in these areas.

Merck did change recently, thanks to a huge merger with Schering-Plough completed in 2009, resulting in a larger company with more than $45 billion in sales last year and 94,000 employees worldwide. Frazier now oversees it all. He is the first African-American to lead a major drug company and, like former Pfizer CEO Jeffrey Kindler ’80, he is a lawyer in charge of a company driven by science and medicine.

While a CEO of a pharmaceutical company could benefit from a science background, Frazier said, Merck is so large and complex that anyone in the position needs to rely on subject matter experts, including scientists, to make the right choices about the programs in which to invest. At the same time, he has been able to learn a variety of skills from different assignments in his nearly 20 years at Merck. In fact, Frazier recounts how he worked more on nonlegal than legal matters there—first as a company spokesman on policy and communications issues, later as director of the global marketing and sales division, and then serving as president—before becoming CEO. He also served as general counsel, and for much of that time, his most important cases involved challenges to Merck’s patents. But in that position, he gained national attention for the way he handled a problem some said imperiled the very existence of the pharmaceutical giant.

In September 2004, Merck withdrew the drug Vioxx from the market after reports surfaced that those who took the painkiller were at increased risk of cardiovascular problems. Plaintiffs around the country filed thousands of lawsuits contending that the drug caused heart attacks and strokes. Business Week wrote at the time that due to this litigation, “Merck’s future is in question,” and the company’s stock price plunged. In a move that the publication called “fraught with peril,” Frazier decided to fight the claims in court rather than negotiate a quick settlement.

“We believed we had acted responsibly and diligently as it related to Vioxx,” Frazier said. “There are certain principles inside Merck that matter a lot to us, like scientific excellence and integrity and putting patients first, and we had felt like we’d done that. And we thought … our actions were being mischaracterized in the press and in the legal system. So we wanted to defend in effect our good name.”

Yet that defense meant relying on juries to understand the actions of a large company in a fight against ordinary people who were claiming grievous harm. Frazier recalled that people called him crazy for taking that chance on the theory that juries are likely to follow their emotions. But he trusted the people in the jury box, and that trust was borne out. After winning most of the Vioxx cases brought, in 2007 Frazier oversaw a settlement of $4.85 billion for 95 percent of the cases—a large amount, yet still far below what Wall Street analysts had predicted.

While some may still associate the Vioxx episode with Merck, Frazier highlights other drugs that the company has produced and what they have meant for people around the world. One example he cited was Mectizan, which fights river blindness; Merck has donated more than 2.5 billion of the tablets to developing countries dealing with this disease. The company also has provided free HIV drugs to countries like Botswana with dire need; these and other efforts mark Merck as a leader in corporate social responsibility, according to Frazier.

That doesn’t mean that his or any company can successfully operate a business by always giving away products, he said. The question for pharmaceutical companies is how to provide drugs and vaccines at prices people who need them can afford while still making a profit.

“The health care needs of the world are so great that the challenge for this generation of Merck people is to develop business models that will allow us to sustainably and profitably provide our innovative medicines and vaccines to those vast underserved populations of the world,” said Frazier. “And I would call that both a moral and business imperative.”

Frazier’s own life story is truly that of a self-made man. Growing up in a tough North Philadelphia neighborhood, he experienced few of the advantages of many of his classmates at Harvard Law. His parents had little formal education, and his mother died when he was 12. His father, whose own father was born into slavery, worked as a janitor after migrating to Philadelphia from a sharecropper’s plantation in South Carolina. Yet from Frazier’s perspective, it was not an upbringing he had to overcome but one that helped mold his future success.

“It’s actually misleading to say I grew up in North Philadelphia. I grew up in my parents’ house, which by accident of geography was in North Philadelphia,” Frazier said. “My father had a very strong view of what it took to be successful, and he in effect brainwashed all his children to think that we could do anything. He had very high personal standards. Although he was a janitor by accident of birth, I believe he could have been a CEO of any company.”

After graduating from HLS, Frazier joined Drinker Biddle & Reath in Philadelphia, where he eventually became partner. But such an outcome was not a given when he started. He credits mentors, particularly Melvin Breaux, the firm’s first African-American associate, who became partner in 1979, with smoothing out a “rough-around-the-edges” young man who was uncertain about how to navigate the social complexities of an old-line law firm. “If I had not been coached well about how to deal with a culture and a set of values that were foreign to my own, I would not have been able to be successful,” Frazier said.

He also credits senior partners, whose backgrounds could not have been more different from his, with honing his skills in becoming a trial lawyer. Most important for his career, they drew him into work on matters for one of the firm’s major clients, a company called Merck, from the very first day he practiced law. Among his cases, he frequently defended Merck against suits involving vaccines, which led him to join the pharmaceutical company in 1992. But what he has called the high point of his legal career did not involve Merck or the corporate litigation he practiced at Drinker Biddle & Reath. It began with a trip to death row in an Alabama penitentiary, prompted by a request from his friend Esther Lardent, the head of the Death Penalty Representation Project of the American Bar Association, to take a case no one else could. Only later did he discover something he did not expect: His client was actually innocent. As Frazier recounted in an article on the case published in the Spring 2004 Toledo Law Review, James “Bo” Cochran, a black man convicted of killing a white store manager “despite evidence suggesting an accidental police shooting and cover-up,” was “denied virtually all of the fundamental rights we associate with a criminal trial, including effective assistance of counsel and a fairly selected jury of his peers. He was ‘railroaded’ in the classic sense.” More than five years after first visiting Cochran, Frazier and his defense team won his release after 21 years on death row.

“He had an orientation to the challenges of dealing with people who were disadvantaged and disempowered that very few lawyers who haven’t done this kind of work bring to the process,” said Bryan Stevenson ’85, executive director of the Equal Justice Initiative, who consulted with Frazier during the case. “He’s also just a terrific litigator—smart and very capable of thinking critically and tactically about issues. That’s where he really excelled, and I think that made the difference.

“To create justice in the world and to do the things that really matter, you have to be a lawyer who not only has ideas in your mind but also conviction in your heart,” Stevenson continued. “I definitely think Ken fits that description.”

Honored with EJI’s Equal Justice Champion award in 2009, Frazier received another honor recently in the form of an invitation. The occasion made him think of his parents. Their strength, their lasting gift, was that they could imagine possibilities, unthinkable when they were growing up, for a child they raised in their home in North Philadelphia. They could imagine he could go to Harvard Law School, help save an innocent man’s life, even become the head of a Fortune 100 company and be invited to the White House by the president. That is why, as Kenneth Frazier was sitting in the Oval Office in February talking with a fellow HLS graduate about issues like health care and jobs, he remembered the people whose abiding faith in him made the moment possible.