Updated from 9:53 a.m. EDT
said Thursday that Raymond V. Gilmartin retired as chairman, chief executive and president, effective immediately, stepping down from the posts about 10 months before he had previously planned.
Although Gilmartin, 64, had been scheduled to retire in March 2006, the timing of his departure was surprising, as was the choice of an insider to succeed him. Many analysts had expected Merck to choose someone outside the company.
The new chief executive and president is Richard T. Clark, 59, who had been president of Merck's manufacturing division. The company won't choose a chairman for at least 12 to 18 months.
The company's stock barely budged on the news, losing 2 cents to $34.91.
Merck's board also announced that Lawrence A. Bossidy, a director, will become chairman of the board's newly constituted executive committee "which will work closely with Mr. Clark to provide support and continuity as he assumes his new duties."
This three-member committee will remain in effect for one to two years. During that period, the board doesn't expect to select a chairman.Bossidy is a former chairman and CEO of
Gilmartin became Merck's CEO in June 1994 after serving as chairman and CEO of the medical device maker
. He will remain as a special adviser to the board's executive committee.
Troubles With Vioxx
Gilmartin had come under fire for the company's handling of the withdrawal of the arthritis drug Vioxx, its weak stock performance and the difficulty in replacing older big-selling drugs that are losing patent protection with new drugs that have big revenue prospects.
Even as late as last week at the company's annual meeting, Gilmartin and other Merck officials had said the board would conduct an orderly selection procedure that would have led to a new CEO being chosen by year-end. At the annual meeting, Gilmartin was among eight nominees for the board of directors. He was re-elected with 95% of the votes cast.
"In no way did we push him out," Bossidy said in response to a question asked at a Thursday press conference. In response to another question, Bossidy said Clark is "definitely not" a caretaker CEO.
Bossidy said the board has not made a decision on whether the jobs of CEO and chairman would be held by one person. A stockholder proposal calling for the separation of the roles was defeated at last week's annual meeting. However, proponents of separating the jobs managed to secure 46.6% of votes cast.
Choosing an Insider
"The board engaged in a thorough and wide-ranging search," Bossidy said. "We looked at internal candidates and external candidates, including those with experience beyond the pharmaceutical industry. ... The more we looked, the more convinced we became that the ideal candidate would be familiar and experienced with the industry and Merck. We have found that candidate in Dick Clark."
Clark joined Merck in 1972 as quality-control inspector and subsequently took on management jobs in production, new-product planning and strategic planning. In his latest job, he served as president of Merck's manufacturing division. In addition to leading manufacturing activities that cover 31 plants in 25 countries, Clark also was in charge of the company's global information services infrastructure, procurement and operational excellence initiatives.
He was president of Medco Health, Merck's pharmacy-benfits management division, from 2000 to June 2002, when he was named chairman and CEO. He held that job until March 2003 prior to the spinoff of
Medco Health Solutions
Clark offered no hints of any immediate changes in strategy during Thursday's press conference, noting that he had only been on the job for 16 hours.
He repeated Gilmartin's comments that the company is "committed to our dividend policy." Clark said he would look at acquisitions in terms of increasing shareholder value and improving the pipeline, but he didn't indicate any interest in the sort of mega-mergers that some big pharma companies have engineered in recent years. That's in keeping with what Gilmartin and board members have been saying.
Gilmartin's successor had been the subject of rampant speculation for quite some time, with the names of outsiders, such as Fred Hassan, chief executive of
, being discussed. Among Merck insiders who found their way into Wall Street's rumor mill were Judy C. Lewent, the chief financial officer; Bradley T. Sheares, president of Merck's U.S. human health operations; and Peter S. Kim, president of Merck Research Laboratories.
Prudential Equity Group's first impression of Clark "is relatively favorable," says Tim Anderson, the firm's pharmaceutical analyst, in a Thursday research note. "This is a 'middle ground' choice for a new CEO, and is unlikely to usher in pure regime change. ... Overall, probably a decent choice for a new CEO." Anderson is neutral on the stock. He doesn't own shares, and his firm doesn't have an investment banking relationship.
"We view the stock impact as very modest," James Kelly of Goldman Sachs says in a report to clients. He views Clark's promotion as having little effect on senior managers whose power will be "undiminished." Clark's selection means corporate strategy will "move forward slowly," says Kelly, who has an in-line rating on the stock. He doesn't own shares, and his firm has had an investment banking relationship with Merck.
"We believe the news will be a mild disappointment, as many investors may have been looking for a more dynamic choice," adds David Moskowitz, of Friedman Billings Ramsey in a Thursday research report. "An external candidate may have been received more positively, in our view."
Moskowitz, who has a market perform rating on the stock, doesn't own shares, but his firm seeks to do business with companies mentioned in research reports. He says that investors may be disappointed that Clark lacks a research and development background, given that reviving Merck's R&D pipeline is one of the company's biggest challenges.