Merck CEO Frazier has learned to 'tune out' critics, thanks to early advice from his father

When Merck CEO Kenneth Frazier was a teenager growing up in inner-city Philadelphia, his father gave him the “single most important piece of advice I’ve ever been given in my entire life,” he said during a recent speech at the New York City Bar Association. The advice has guided him through many tough decisions at Merck, he added.

“‘Kenny, what other people think about you is none of your damn business,’” Frazier said, quoting his father. “‘The sooner you learn that the better off you’ll be.’” The advice came in response to Frazier’s complaint that all his friends had replaced their high-top canvas basketball shoes with newfangled leather shoes, and they were making fun of him for being unfashionable.

Frazier has been reminded of his father’s words many times since he took over as CEO of Merck in 2011, he said. And the advice has guided him to make decisions that he knows will be unpopular.

For example, shortly after becoming CEO, Frazier stopped providing long-term earnings guidance to Wall Street analysts, and he resisted the “immense” pressure Big Pharma CEOs were facing at the time to cut research and development spending.

“I knew what this company was about was the science,” Frazier said. “I just had to tune out all the critics.” Ultimately, he added, those critics applauded the decision.

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That high R&D spending paid off big-time for Merck, of course, particularly with the approval of Keytruda, the company’s blockbuster immuno-oncology drug. But analysts are still giving Frazier a hard time about the drugmaker's pipeline.

During the company’s fourth-quarter earnings release in February, Merck said to expect sales this year of between $43.2 billion and $44.7 billion—the lower end of that range coming in below analysts’ expectations. Frazier again urged investors to focus on the potential for R&D investments to produce more blockbusters down the line.

Merck “has one of the broadest and most promising pipelines we’ve had over the past few decades,” Frazier said during a conference call with analysts. But the comment was met with some disdain, with one analyst going as far as to ask, “What are we missing?”

Frazier has also been taking barbs from Washington legislators. He was one of seven pharma executives to be grilled at a Senate Finance Committee hearing on drug pricing in February. When senators accused the industry of promoting “freeloading” by other countries, where many prescription drugs sell at much lower costs, Frazier responded by calmly explaining why pricing is so different overseas.

European countries, for example, can negotiate very low prices, he said, because they know companies like Merck won’t just “walk away” from patients.

RELATED: On second thought, Big Pharma CEOs decide to show up at Senate pricing hearings

Frazier is unfazed by having become somewhat of a punching bag in D.C. It started in the summer of 2017, when the CEO quit President Donald Trump’s manufacturing council in the wake of events in Charlottesville, Virginia. Frazier was shopping with his wife in New York City, he told the New York Bar Association, when he decided he had to quit the council in response to the president not taking a stronger stand against white supremacy.

“It was really clear that if I stayed, … it would be a tacit approval of what was said and what was not said,” Frazier recalled. “And when you run a company like Merck, you always have to think about your institutional responsibility.”

Frazier called an emergency board meeting, not to ask permission to leave the manufacturing council but rather to offer to present it as a personal decision instead of a corporate statement. But the board decided unanimously that the message should come from Merck.

“I think we as Americans, particularly we as lawyers, have to take strong stands about things that we say are our fundamental values,” Frazier said.

Challenges aside, Merck’s board is clearly pleased with Frazier’s performance as CEO. Last September, the board scrapped the company’s policy that CEOs must retire at 65. Frazier will turn 65 later this year and will stay at the company.

Frazier told the New York Bar Association that when he retires, he hopes to go into public service. But for now, he’ll keep guiding Merck with the advice from his father always top of mind. “To the point of these hard decisions, I hear him. The critics are all around you,” he said. But he won’t bow to any pressure to blindly follow industry trends or to shy away from controversial strategies. “Just avoiding risk doesn’t make a company successful,” he said.