5 Keys CEO Ken Frazier Uses to Lead With Humanity in the Pharmaceutical Industry
By Jessica A. Floyd
A biopharmaceutical company’s ability to improve society and bolster its humanitarian and philanthropic efforts are inextricably linked to its financial success. Merck Chairman and CEO Ken Frazier sought to emphasize just that point recently, speaking with University of Virginia Darden School of Business Executive MBA students at an event sponsored by the Black Executive MBA Club at the School’s Grounds in the Rosslyn district of Arlington, Virginia.
Citing his company’s push to research and develop vaccinations for the Ebola virus, Frazier said “it’s great to say we’re here to serve humanity, but the context in which we serve humanity is one in which I get $10 billion a year from my investors to invest. And the only way I can do that is to give them a return on invested capital.”
Frazier has emerged as a trailblazing leader in global business not only as the first black man to lead a major pharmaceutical company but also for his insistence that businesses exist to deliver value to society, rather than just investors.
During the CEO’s speech and dialogue with students, he emphasized five critical areas of focus that allow him to drive Merck’s profits while keeping humanity in mind.
Commitment to Science Research
Frazier touted his company’s commitment to researching neglected diseases and continuing to produce antibiotics as examples of Merck’s humanitarian efforts.
According to the CEO, “Merck is just about the only big pharma company doing antibiotic research at the end of the day.” He said funding for antibiotics research is often viewed as too costly for a product with an uncertain future revenue stream. The uncertainty of the profitability of vital new antibiotics is one reason Frazier gave for why the pharmaceutical field does not invest in the drugs.
“Pharmaceutical companies, in my view, are either research and development companies or they’re search and development companies that do M&A to get their products.”
Touting the company’s research bona fides, Frazier noted that the pioneering work conducted in their labs has led to revolutionary discoveries — and have even been associated with the Nobel Prize in Medicine or Physiology.
Recruiting Committed Talent
Frazier sees the expansion of Merck’s vaccine research programs as great scientific opportunities that allow him to “recruit the kind of scientific talent” that his company requires and overcome apprehensions of a scientific community that often does not view the pharmaceutical industry favorably.
“There are a lot of people in academia who don’t want to come over to the ‘cold dark side,’” Frazier said. “If they were going to come to the dark side, [creating a vaccine for Ebola] is a strong statement to them about what the company’s values are.”
Although Frazier wants to appeal to the values of his talent pool, he also has to manage the expectations of his investors.
Balancing Investor Expectations
Part of this management process requires Frazier to perform a balancing act between meeting financial expectations and providing humanitarian medical aid.
“The challenge we have is that the profits that we need to make on new drugs are critical to ensure our investors continue to invest in the company in the long run. This sometimes draws us to a point where citizens say you’re charging too much for these drugs,” Frazier said.
The time it takes for the drug development process is another factor that presents difficulties for Merck. According to Frazier, some drugs can take up to 15 years on average to develop in the lab.
“On the one hand, I have to continue to have a return on invested capital that will allow my investors to continue to put money out patiently for a long period of time,” Frazier added.
Using the Founder’s Ethos as a Guide
During the recruitment process, Frazier uses company’s founder George Merck as a model of excellence. A 1952 Time magazine cover story features a quote from Merck that Frazier expects every employee to embody: “We try to remember that medicine is for the patient. We try never to forget that medicine is for the people. It is not for the profits.”
“It is important that everybody who comes to the company understands the company’s ethos” about putting people over profits, Frazier said.
Creating Products With Patients’ Lifestyles in Mind
Merck keeps its guiding principle in mind by creating medical devices and drugs with an emphasis on the needs of patients.
The company is investigating implantable devices that allow slow and sustained release of HIV therapy and may provide an alternative to the need to take pills every day. The goal is to provide a more convenient way for patients to take their medication, Frazier said.
“At the end of the day, the way we try to create products is by following where the science takes us,” Frazier said.
The University of Virginia Darden School of Business delivers the world’s best business education experience to prepare entrepreneurial, global and responsible leaders through its MBA, Ph.D., MSBA and Executive Education programs. Darden’s top-ranked faculty is renowned for teaching excellence and advances practical business knowledge through research. Darden was established in 1955 at the University of Virginia, a top public university founded by Thomas Jefferson in 1819 in Charlottesville, Virginia.
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