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Merck CEO Ken Frazier rose from humble beginnings in North Philly to run a big pharma company | Industry Icons

After Ken Frazier's 8 years as CEO, the board recently extended his contract. He heads a storied research company but faces challenges especially on drug pricing.

Merck CEO Ken Frazier.
Merck CEO Ken Frazier.Read moreJennifer S. Altman

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CEO Ken Frazier's office overlooks the trees and greenery of the Kenilworth, N.J., global headquarters for Merck, one of the world's most important pharmaceutical companies. His path there started in North Philadelphia, where he grew up the son of a janitor who prized religion, education and baseball.

Tucked around the office are a few signs of the magnitude of his success as head of a $40 billion-a-year corporation. There's the photo of him and Pope Francis, commemorating a meeting held at the Pope's request in April 2017. There's the framed copy of the tweet that went viral later that year, when Frazier announced his resignation from President Trump's manufacturing council, following the white nationalist violence in Charlottesville.

A Harvard-trained attorney, Frazier was inspired to build a career representing corporations — rather than the trajectory he'd envisioned in civil rights or criminal defense. But his North Philly upbringing influenced his courtroom style, instilling in him a respect for people "who did not have the indicators of society's success."

"I think it helped me a lot as a jury trial lawyer to have been raised where I was raised, because for me, talking to the normal, average person wasn't a hard thing," he said one rainy afternoon in September. "I didn't feel like I had to talk down to them. I understood them."

And the thing is, Frazier is very good at talking to people, and nearly eight years into his tenure as a Fortune 500 CEO — a rare title he is one of the few African Americans to hold — he seems to have a wider reach than ever. His departure from Trump's business advisory group set off a domino effect of resignations by other corporate chiefs, until President Trump shuttered the council.

On the business side, Frazier has extolled the virtues of his shareholders' "patient capital" and his company's multi-billion dollar R&D expenditures each year. To show for it: Merck's stock price has doubled since Frazier took the helm in 2011, and its blockbuster Keytruda therapy is one of the most important cancer drugs on the market.

In recent media appearances, Frazier has been increasingly vocal about the politically-amped issue of drug prices, questioning the costs that other players in the supply chain are adding. "I'm not saying the pharmaceutical industry doesn't have a role to play, but we can't do it by ourselves," he said.

In late September, Merck's board effectively told the world they didn't want to risk losing Frazier anytime soon, and abolished the company's mandatory CEO retirement age so he can continue past his 65th birthday in December 2019.

Nine days before that announcement, Frazier — in dress shirt, red tie, no jacket — was thinking of other things when he stood up from a table in his office, walked over to a collection of framed photographs, and picked up the one of him with Pope Francis at the Vatican. They met for 35 minutes, an opportunity Frazier calls "life-changing" and on a level of "spiritual resonance" matched only by the time he saw Nelson Mandela in South Africa in the early 1990s.

The Pope encouraged him to "help more people with medicines, people who can't afford medicines… Largely he was talking about the billions of people who live in poverty. And we've tried to do that." More than 30,000 people have received Merck's investigational Ebola Zaire vaccine — a product that holds no financial promise, from a commercial perspective — and Merck has committed to keeping a stockpile of at least 300,000 doses on hand for emergencies.

"That's the kind of program that one undertakes not because you think you're going to make profit," he said.

Frazier is deeply proud of Merck's research mission _ "The company's raison d'être is to improve and extend life, and to relieve human suffering on a mass scale" _ yet it is difficult to coax from him any admission that he is directly responsible for its successes. He's wont to push back on the "narrative fallacy" of his role, meaning that it's often other people who are making "the most important decisions" at the company he runs.

To take Keytruda — a drug that generated nearly $1.9 billion in sales last quarter alone — Frazier concedes that, yes, he did hire Roger Perlmutter as head of research and development. But Frazier credits Perlmutter as the one, "who really saw the potential with the drug and really accelerated its development, and saw that it could be a broad-spectrum agent for multiple cancers." As of early November, Keytruda had received FDA approvals across nine types of cancer tumors, and the company expects many more uses to win approval, as it carries out more than 900 clinical trials.

Merck's continued investments in research distinguish it from other companies. Merck researcher Maurice Hilleman was the leader in fashioning childhood vaccines in the 1960s and 1970s.

But many pharma CEOs don't follow that model. They keep their stock prices up by cutting R&D spending, and acquiring a company when they're "desperate for a new product," said Erik Gordon, a business school professor at the University of Michigan.

"On the other hand, Frazier has stayed committed to the riskier path: spend your own money on R&D, and try to avoid paying for acquisitions," Gordon said. "He does stand out among pharma CEOs."

Merck's culture and Frazier's leadership, Gordon said "is based on really wanting to cure diseases and treat patients, and running a business that will do that, as opposed to running a business that makes a lot of money and just happens to be in the drug industry."

Frazier views his role as that of putting people in the right jobs and making sure they're aligned around the right mission. He thinks that "corporate hierarchy isn't a positive thing." Once you've found the best talent, "I believe you have to give them the respect and the latitude to contribute without close meddling."

In his own career, it was Frazier's wife who encouraged him (strongly) to consider leaving law firm life to join Merck, and it was then-Merck CEO Roy Vagelos — a titan of the pharma world — who showed him the importance of giving people a chance to develop beyond their traditional areas of expertise. "He was willing to say, 'I know you're a lawyer, but that's not all you are.'"

Frazier has held several different positions at the company — including vice president of public affairs, and president of global human health — and was named general counsel in 1999. He's widely seen as having steered the company out of its darkest chapters: the massive liability that stemmed from Vioxx, a painkiller that the company voluntarily recalled in 2004, and that was linked to increase risk of heart attacks.

Facing thousands of lawsuits, Merck defended itself in court, and "won more cases than they lost," said Thomas Kline, one of the main lawyers representing plaintiffs in the litigation. The company ultimately reached a nearly $5 billion settlement "on what could have been a much larger problem," said Kline, who has little but praise for Frazier: "Having been on the other side of may pharmaceutical executives over many decades, he stands out as being by far the most the most grounded, and the most humane."

Defending the cases was about defending the company's heritage, Frazier said. Merck recalled the drug "because it was the right thing and we were prepared, therefore, to defend how we dealt with that drug all along," he said. "In the end, I think we were successful because we were able to help juries understand we were behaving in an ethical manner, not because we were just the best trial lawyers in the world."

Frazier is now pressing his company's case amid intense scrutiny of drug prices "You're balancing the current need of patients to have access to a drug, with the need of tomorrow's patient to have access to a drug we haven't yet discovered," he said. "That's the way I actually think about it."

And he argues that while his company is the one innovating those medicines, the companies in between Merck and the consumer are taking a big cut along the way, too. This year, Merck started publishing a "transparency report" on pricing, and reported its U.S. gross sales were reduced 45.1 percent, because of the rebates and discounts it gave to others in the supply chain.

But when patients have to make a co-pay for a prescription, often they are not benefiting from the lower, negotiated price, he said. "Affordability really deals with, What do patients have to pay out of their pocket in order to get drugs? And that has to do with the structure of insurance benefits in this country."

As for the products that Merck will continue to develop, Frazier said that is dependent on two things: scientific opportunity and unmet patient need. Given the success of drugs including Keytruda, the company is moving toward specialty medications, but not by any mandate from the CEO: "It wasn't a direction that I pointed to," he said. "It's where the science led us."