Merck's choice of former Medco head Richard Clark to succeed Ray Gilmartin as CEO reflects the importance the company is placing on managed care ahead of the start of the Medicare drug benefit.

Clark, who served as CEO of Medco Health before Merck spun off the pharmacy benefit manager in March 2003, will be in a position to leverage that experience leading up to and following the start of the Medicare prescription drug benefit in January 2006.

The exec hinted at changes to Merck's managed care strategy during a May 5 conference call with analysts announcing the CEO succession plan.

"Certainly with my background, there is no doubt that in the value chain, not only from a patient standpoint, but also from a payor standpoint, we have to bring value to the payor," Clark said.

"There will be creative and innovative approaches that we're going to take in that situation," he said. "With information technology [and] patient education, I believe there is a new business model that we can put together...and certainly we're already looking at that."

Clark's review of managed care opportunities will be part of a wide-ranging assessment of the company's business strategy, including revisiting Merck's long-standing tradition of avoiding large-scale mergers (see ¹ Also see "Merger Policy Will Be Revisited Under Merck Corporate Review" - Pink Sheet, 5 May, 2005. ).

The exec served as president of Medco from January 2000 to June 2002, when he was named chairman and CEO. Clark returned to Merck to head the company's manufacturing operations after the Medco spin-off.

The chairman of Merck's new executive committee, former Honeywell CEO Lawrence Bossidy, praised Clark's performance at Medco during the analyst call. Bossidy's committee will advise Clark in place of a company chairman (see ² Also see "Chairman Position Is Vacant As Merck Board Opts For "Executive Committee"" - Pink Sheet, 5 May, 2005. ).

"As CEO of Medco Health Solutions, Dick Clark delivered impressive growth," Bossidy declared. "He proved to be an exceptional leader and strategist, identifying and capitalizing on Medco Health's unique capabilities to build the foundation of what has become one of the world's leading health care companies."

Clark served at the helm of Medco during a period in which the PBM's sales represented the majority of Merck's total business. Medco grew rapidly under Clark, but the resulting impact on Merck's margins drove the company's decision to divest the PBM.

Merck also emphasized Clark's role in spearheading operational efficiencies as president of Merck's manufacturing division.

"Here at Merck, Dick has been the architect of some of this company's most important strategic initiatives," Bossidy said. "He has been a force within Merck to maximize the potential of the pipeline, accelerate the development of new medicines, streamline business processes, and focus resources in a way that optimized a competitive advantage of the company."

Clark has overseen Merck's ongoing cost-cutting program and has given updates to investors during the company's annual business reviews. The program is expected to result in more than $2 bil. in cost reductions through 2008.

Clark's appointment as CEO signals that operational efficiencies will continue to be a focus for Merck as the company recovers from the aftermath of the Vioxx withdrawal and prepares for the upcoming exclusivity losses on Zocor and Fosamax .

Clark's lack of experience in pharma R&D will cause him to rely heavily on Merck Research Labs President Peter Kim, whose name was mentioned several times during the analyst call as an important resource for Clark.

"Fortunately, we have a very talented person heading our research effort in Peter Kim," Bossidy said. "The combination of Kim in research as well as the other members of this team...led us to be very comfortable that Dick could lead this group."

Gilmartin retires from Merck after 10 years as the company's CEO and will serve as advisor to the executive committee. Gilmartin came to Merck from outside the pharmaceutical industry; he served as CEO of hospital supply company Becton Dickinson from 1989 to 1994.

Gilmartin's departure came the same day as a House Government Reform Committee hearing that marked the culmination of the panel's months-long investigation into Merck's promotional practices for Vioxx (see ³ Also see "House Investigation Of COX-2 Promotional Practices Turns Attention To Pfizer" - Pink Sheet, 5 May, 2005. ).

- Kate Rawson

Merck CEO Clark Brings Managed Care Expertise To Post; Gilmartin Retires

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