The move comes amid ongoing frustration that Merck has not produced more big sellers during Kim's tenure. Among a dozen or so FDA approvals were the Januvia and Janumet diabetes treatments, which generated a combined $5.7 billion in sales last year; the Isentress AIDS drug, a $1.5 billion seller, and the Gardasil vaccine to thwart HPV, which is now a $1.6 billion register ringer. But the last decade has been something of a lost decade.
"I think it is a smart move, Perlmutter obviously knows Merck well and its target disease areas," says Barbara Ryan, an independent analyst who tracks the pharmaceutical industry. Perlmutter "has tremendous experience with biologics which is where a lot of the innovation is taking place. He takes risk, and I think it is a sign that (Merck ceo) Ken Frazier is willing to take bold steps to improve returns. Clearly, there have been a lot of disappointments for Merck in R&D, although they are certainly not alone in that regard."
As for Merck disappointments... Last month, for instance, Merck unexpectedly delayed the timetable for submitting a new osteoporosis drug called odaanacatib to the FDA until next year. The drugmaker never offered an explanation. Kim had told analysts that he had seen complete data from a large Phase III trial, but was awaiting data from a follow-up study. A puzzled Wall Street was disappointed, since some analysts forecast the medicine could generate annual sales up to $2 billion.
Two months ago, Merck yanked its Tredaptive pill from 40 countries after a study found the failed to prevent heart attacks, strokes and deaths more than traditional statin drugs that lower LDL, or bad cholesterol. Moreover, the pill, which was a combination treatment that included niacin, also caused of non-fatal, but serious side effects (back story). The findings ended any hope of seeking FDA approval, which had already been delayed several years (see this).
Moreover, Kim was in charge of R&D during the Vytorin scandal five years ago. At the time, Merck and Schering-Plough – which was its partner but is now owned by the large drugmaker – were criticized for their handling of a clinical trial in which the primary endpoint was changed and done without the knowledge of the lead investigator (read here). The drugmakers repeatedly delayed reporting results, raising questions about whether patients received sufficient benefit for a heavily promoted and expensive pill (see this). The pill combines the Zocor and Zetia cholesterol drugs.
For those of you who may not recall, Kim also disappointed Wall Street in 2007 when he announced that clinical data indicated there was no reason to continue further development of a sleeping pill and all trials were ending, after side effects such as hallucinations and vomiting were reported. A few months earlier, Merck told analysts the pill was to be one of its shining new pills that would help turnaround the drugmaker in the wake of the 2004 withdrawal of the Vioxx painkiller (back story).
Certainly, Kim was willing to take some chances. Recently, for instance, Merck disclosed plans to take a pill into a Phase II/III study with patients who suffer from mild-to-moderate stages of the disease (back story). The move underscored a willingness to place big bets on tackling Alzheimer’s. That decision came shortly after Bristol-Myers Squibb (BMY) halted testing of a compound, and Pfizer (PFE) and Johnson & Johnson (JNJ) gave up on their own drug.
Whether Perlmutter is the proper managerial elixir, remains to be seen. His own tenure at Amgen (AMGN) did not yield a plethora of huge new sellers and many investors were clamoring for a change of management (see this), although the denosumab osteoperosis treatment, which is known commercially as Prolia and Xvega, has performed well, generating $1.2 billion in sales last year.
Perlmutter may have an advantage - at least over other outsiders - in that he has some insights into Merck (MRK) culture. Of course, he has been away more than a decade, having joined the drugmaker as a senior vp in 1997, when Ed Scolnick headed R&D and there was an ongoing sense of optimism - some called it arrogance - that Merck laboratories could continue generating successful medicines. But coming from a biotech environment, Perlmutter may also be able to bring a fresh perspective into biologics, an area that has largely eluded Kim (look here).
"I think Perlmutter will try to bring a focus toward biologics and specialty diseases at Merck," says Morningstar analyst Damien Conover, "which has still been heavily focused on primary care indications."
[UPDATE: In a research note, Leerink Swann analyst Seamus Fernandez writes: "on balance, most investors we speak with have been disappointed by Peter Kim’s tenure as head of MRK’s R&D. While we acknowledge that changing R&D can take up to 10 years at any company, and Mr. Kim's tenure was severely challenged by the Vioxx controversy, we believe a transition makes sense at this time... We fully expect Mr. Perlmutter to provide a fresh look at the pipeline, and whether this is specifically keyed to rapid R&D prioritization and spend."]