Healthy Skepticism Library item: 7179

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Publication type: news

Raising Merck's threshold of pain
MSN Money.com 2006 Nov 26
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=FT&Date=20061126&ID=6223916

Abstract:

Walking so fast that others struggle to keep pace, Peter Loescher, the new second-in-command at Merck, slows only to make clear immediately that he sees no sacred cows at the US drugmaker.

While his six-feet-six-inch frame lopes down a corridor of a Merck marketing satellite office in Pennsylvania, Mr Loescher talks bluntly about its headquarters a short distance away in rural New Jersey. The building, he says, is a direct reflection of Merck’s insular culture and old-fashioned business operations.

“You would never do [build] this today,” Mr Loescher says of Merck’s headquarters in Whitehouse Station, New Jersey, in an exclusive interview withthe FT.

That headquarters was a crowning touch for Roy Vagelos, Merck’s chief executive until 1994, who attained saint-like status within the drugmaker. Performance soared under Mr Vagelos, a doctor and scientist who rose through the ranks.

In 1992, Merck, then the world’s leading drugmaker, moved to the isolated, hexagonal complex surrounded by woodland.

But Mr Loescher’s frank talk about such hallowed ground shows exactly what he has been brought to Merck to do.

He is an outsider. Formerly head of US conglomerate General Electric’s Healthcare Biosciences unit, he was hired to turn Merck into a more outward-looking, aggressive, disciplined and seamless operation. He has started by pushing managers outside of headquarters.

“Merck in general over many years was too inward looking,” Mr Loescher says, speaking with an Austrian accent. “When I arrived here, we had region heads and everybody was based in headquarters.”

“And I got rid of this. We have to have a global playbook and the regions have to move out!”

His arrival in May marked the biggest change yet at Merck under Dick Clark, chief executive, who has vowed to push profound change. Mr Clark created a new position for Mr Loescher, president of Global Human Health, giving him responsibility for all of Merck’s sales and marketing operations as well as other functions including public affairs and finance.

In addition, Mr Clark cleared out several Merck veterans, including Per Wold-Olsen and Brad Sheares, ex-heads of world and US drug marketing respectively.

Mr Clark’s own promotion came about 18 months ago, as he replaced Ray Gilmartin, who left after 11 years as CEO.

Mr Clark took over a company reeling from the withdrawl of Vioxx and facing potentially billions of dollars in litigation liabilities. Its credibility on Wall Street had plunged due to years of missteps and flat or falling profits.

He has charged Mr Loescher with restructuring Merck’s drug sales and marketing approach and eliminating overlapping regional functions to improve efficiency. In the process, he is supposed to change Merck’s culture too.

Mr Loescher says his experience, both in business and in life, has given him the right “instincts” for the job.

He has worked for Aventis, the Franco-German drugmaker now part of Sanofi-Aventis and Amersham, the UK medical group bought by GE, where he served on its corporate leadership council.

Although he says his intention is not to “General Electrify Merck”, Mr Loescher wants to inject GE’s approach of using the best ways, whether from internally or externally, to get things done, and rigorous measuring to see if it could be better.

“You manage what you measure, and you measure what you manage,” he says.

One critical change he sees is the gradual breakdown of Merck’s culture of caution. The company’s “threshold of pain” was too low causing an over-reliance on “the perfect plan” and then suffered from a lack of flexibility to react when inevitably things did not turn out perfectly, he says.

Instead, Mr Loescher preaches “speed, speed, speed” and the guts to try new approaches.

He asks whether functions such as logistics, information technology, or pan-European distribution can be done cheaper and better by someone else who might be better located to take advantage of emerging markets.

“What is lean, what is fast, and what do I have to do myself?”

However, Mr Loescher, 48, has many years ahead of him. He will not admit interest in any job beyond his own, but there is a telling sign that Merck really wants him to stick around. His base salary is $1.1m ($1,100,004), exactly equivalent to Mr Clark’s.