Merck & Co. CEO Davis Debuts With A Leaner Organization And Money To Spend
Executive Summary
Merck's new CEO Robert Davis talked about his vision for business development and how the company might use the $9bn gained from the spinout of Organon.
Merck & Co., Inc..'s new CEO Robert Davis made his public debut as the company's leader during its second quarter sales and earnings call on 29 July. The leadership transition represents a new start for the company in multiple ways, as this is also the first quarter for Merck as a substantially leaner organization, having spun out its established products, biosimilars and women's health portfolio under the Organon moniker.
"I know it's not about promising. It's about performing. Actions speak louder than words," Davis said, opening the call with a vow to accelerate the delivery of new innovations to the market. "I pledge to do all I can to ensure that Merck remains a global biopharmaceutical leader long into the future."
"We will be unbounded by therapeutic area, though we are mindful of the need to have a balanced portfolio over time," Davis said of Merck’s business development agenda.
Davis – previously CFO of Merck – was appointed to succeed the company's longtime CEO Ken Frazier in February in what is expected to be a smooth transition. (Also see "Davis To Shepherd Merck & Co. Toward The Post-Keytruda Era, As Frazier Exits" - Scrip, 4 Feb, 2021.) The leadership changeover got off to a good start, thanks to strong second quarter financial results amid a COVID recovery for key brands like Keytruda (pembrolizumab) and Gardasil (human papillomavirus 9-valent vaccine), padded by easy comparisons against the year-ago quarter. (See table below for detailed results.)
Merck raised its financial guidance for the year, forecasting revenue growth of 12%-14% for the full year to $46.4bn-$47.4bn, though the new guidance reflects lower revenue estimates overall, reflecting the Organon spinout. (Also see "Merck To Spin Out A New Company, Following Industry's Downsizing Trend" - Scrip, 5 Feb, 2020.) Prior guidance called for top-line growth of 8%-12% but assumed the inclusion of Organon for the full year.
Aggressive Business Development
The top priority for Davis will be building out the commercial portfolio with new drugs that will position Merck for long-term growth even as its blockbuster-seller Keytruda (pembrolizumab) matures and faces increasing competition. With that in mind, much of the focus of the second quarter call was on business development, and particularly how Merck might direct the $9bn it gained from the spinout of Organon in June. (Also see "Organon Is Ready To Launch And Makes The Case To Investors" - Scrip, 3 May, 2021.)
"We will be unbounded by therapeutic area, though we are mindful of the need to have a balanced portfolio over time," Davis said. "We'll seek new products, modalities and platforms that allow us to establish beachheads in important areas."
He highlighted cancer, obviously, as a therapeutic area the company will be doubling down on, given the ability to leverage the company's position with Keytruda and the high unmet need that remains for most patients.
"I also recognize that we have to do more than that. We need to be balanced," he said. "We are looking to areas outside of oncology as well, and I would like to see us do things in both, so build the strong foundations, continue to lead in oncology, leverage the data we have there, but look to where can we balance that and augment the portfolio in outside areas."
Merck will consider both early- and late-stage assets, he said, noting the company will have the financial flexibility to consider deals of all sizes.
"We are most interested in transactions that are easily integrated and less disruptive, where value is principally derived by the introduction of innovative new products that address patient needs instead of cost synergies," he added.
The company has already completed a string of deals including the $2.57bn acquisition of VelosBio Inc. in oncology, the $1.85bn acquisition of Pandion Therapeutics, Inc. in autoimmune disease and a development deal with Gilead Sciences, Inc. for long-acting HIV drugs. (Also see "Merck Pays $2.75bn To Access VelosBio’s ROR1-Targeting ADCs" - Scrip, 5 Nov, 2020.) and (Also see "Merck & Co. Buys Pandion, Building Out Capability In Autoimmune Disease" - Scrip, 25 Feb, 2021.)
Despite Davis's promise to fill out the portfolio through business development, he also re-emphasized his confidence in the current pipeline.
"We also have a strong internal pipeline, and I don't want to lose sight of that," he said. "We really do have a lot of confidence in what we can bring forward across the breadth of both oncology assets as well as assets outside oncology and vaccines."
One of Merck's newest commercial opportunities is Vaxneuvance, a 15-valent pneumococcal vaccine approved by the US Food and Drug Administration in July that will compete against Pfizer Inc.'s Prevnar 13 and recently approved Prevnar 20. (Also see "Keeping Track: US FDA Clears Vaxneuvance, Rezurock And Karendia, But Not Teplizumab" - Pink Sheet, 16 Jul, 2021.) Neither of the vaccines are expected to get broad uptake until the US Centers for Disease Control and Prevention's Advisory Committee on Immunization Practices votes on recommendations for the vaccines at a meeting in October. (Also see "Pfizer’s Prevnar 20 May Have Edge Over Merck’s Pneumococcal Vaccine, ACIP Suggests" - Pink Sheet, 28 Jun, 2021.)
Another near-term opportunity is a novel antiviral to treat COVID-19, molnupiravir, in high-risk patients. The company confirmed that it is on track to report data from the Phase III trial testing that drug in the October timeframe.